Main Content

Fixed vs. ARM? Which is right for you?

Fixed vs. ARM? Which is right for you? These days there are many mortgage products to choose from. The most common is a 30-year fixed rate, but is that really best for you? A 30-year amortized fixed rate loan means the payment is fixed for the entire duration and at the end of the loan, the home is paid off in full.

An ARM (Adjustable-Rate Mortgage) can be fixed for a duration of time. The most common ARM’s are 5, 7 and 10 year ARM’s. That means the loan is still amortized over thirty years but is a fixed rate of interest for the initial term of 5, 7 or 10 years. These products are often offered at a substantially lower rate than fixed rate mortgages. For example, as of this writing a 30-year loan is hovering about 5%, whereas our 7-year ARM is around 3.625%. That is quite a discount and can truly lower the monthly payment. On a 7- or 10-year ARM you also qualify at the start rate which can help people qualify.

The average mortgage in the US is held 10 years or less. Families may sell and move, refinance to take cash out and add on or remodel their home, or simply pay the house off before the initial fixed rate term occurs. The loan is not due and payable at the end of the fixed rate term. It becomes an adjustable rate for the remainder of the 30 years and continues to be fully amortized and paid in full at the end of the term.

What is the downside to an ARM type of loan?

If interest rates are low and you have been able to obtain a 30-year fixed rate, then that rate is fixed the entire term of the loan. That ensures you a set payment which you can count on until it is paid off. For some, that creates security in knowing the monthly obligation. But before you jump into a fixed rate, truly analyze your long-term goal with the home. Will you move up to a bigger or smaller house? Are your children almost off to college? Will you possibly be transferred for work? All of these life events may lead you to the choice of an ARM loan for your next mortgage.

This article is presented by

Dean Rathbun

Dean Rathbun

NMLS 98516 | DRE 00998943
[email protected]
888-455-2847 Toll Free
www.DeanRathbun.com

10 Get In Touch

Contact Us

Call Mary at 760.567.7282 or fill out the form below

Keep up to date with the latest market trends and opportunities in La Quinta, Caliifornia

    Skip to content