When you get a mortgage, you have two choices when it comes to your interest rate: fixed or adjustable.
With a fixed rate, you get the same interest rate the entire time you have the loan. The interest rate you pay on day one is the same rate you pay 30 years down the road.
On the other hand, an adjustable rate will fluctuate, meaning your rate (and payment) can increase or decrease over time.
Both have their benefits, but the right one depends on your unique situation and goals. Think about these pros and cons when weighing your mortgage options.
Fixed-Rate Mortgages
Pros:
- Consistent rate and payment for the life of the loan
- Easy to plan for and fit into your budget
Cons:
- A higher interest rate is possible (when compared with adjustable-rate loans)
- Refinance required if you want to take advantage of lower interest rates
Adjustable-Rate Mortgages
Pros:
- Lower interest rate up front (compared to fixed-rate loans)
- The rate and payment can drop if market rates fall
Cons:
- Rates and payment amounts can fluctuate, so you could end up paying more down the road
- It can be difficult to plan your budget without a consistent payment
Generally speaking, an adjustable-rate loan can be a good idea if you plan to move out of the home or refinance before your rate changes. If you’re looking to stay put for the long haul, though, a fixed-rate mortgage is typically a better idea.
Reach out if you have questions about homebuying or need help kick-starting your next home search.
