Fixed-Rate Mortgage And Adjustable-Rate Mortgage: A Brief Overview
As with all loan products, a fixed-rate mortgage and an adjustable-rate mortgage both offer an opportunity to make your dream of homeownership a reality. But the right mortgage is different for everyone.
Here’s what to know about a fixed vs adjustable-rate mortgage.
A fixed-rate mortgage is exactly as it sounds – the interest rate on your home loan is fixed for a certain period of time. Maybe it’s 10, 15 or 30 years – but for the entire length of that mortgage, that interest rate won’t change.
With this fixed-rate period, your monthly payment of principal and interest won’t change. However, your overall mortgage payment could change due to the fluctuations in your homeowner’s insurance bill and property tax costs.
This appeals to a lot of people because it gives them certainty. Even though your mortgage payment can vary a bit, a fixed-rate loan keeps the payment relatively steady.
An adjustable-rate mortgage, otherwise known as an ARM or variable-rate mortgage, has two components. The first is the fixed component, meaning that the interest rate stays level for a fixed-rate period. This can be as short as 6 months or as long as 10 years. However, they all begin to adjust after that fixed period. They adjust up and down with the market.
At Quicken Loans®, whether you choose the 5-, 7- or 10-year ARM, you’ll get the lowest rate we offer and save thousands over a traditional fixed-rate mortgage during the initial fixed-rate period. But after that initial interest rate period, the rate may change according to the terms and your documentation. This may be in intervals of 6 months or a year, depending on the loan.