There are two kinds of mortgages, fixed-rate and adjustable-rate mortgage (ARM). Every mortgage kind has its highs and lows.

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What is a Fixed Mortgage?

A fixed mortgage has an interest rate that remains the same for good. Fixed mortgages are the most common kind of financing because they provide predictability and stability — I’ll never be surprised by the principal and interest charges in my monthly mortgage payment because they’ll stay the same for the entire loan term.

Fixed rate mortgage highs and lows

• High: This loan kind has predictable payments that may allow for smoother budgeting.
• Low: The loan seems to be easy to understand and may be feasible for first-time buyers.
• Low: I may pay more interest over the life of the loan.
• Con: I have to refinance to get a lesser interest rate, which can be expensive.

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What is an Adjustable Mortgage?

Commonly referred to as an ARM, rates and monthly payments remain the same for a set period of time, then evolve periodically. For example, a 5/1 ARM locks in the rate for the first five years, then the rate will fluctuate once per year. The rate will either increase or decrease depending on rate trends in the US.

Adjustable Mortgages Highs and Lows

• High: The initial interest rate may be lesser than on fixed rate mortgages.
• Lows: The loan can be customized to individual borrowers.
•  Interest rate on the loan may increase substantially.
• Loan could seem more difficult than a fixed mortgage.
• Loan payment may change so I may not have fixed monthly payment amounts.
• I may be have to pay more interest over the life of the loan, depending on how adjustable rates change over time.

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I hope you have a better understanding of which option to go for a fixed mortgage or an adjustable mortgage. Additionally, which mortgage calculator do you use specifically? Would you like to share with the IBA family?