ARM vs FRM: Which Is Right for You?

 

When people look to purchase a home, many people choose a fixed-rate mortgage (FRM). These types of mortgages offer stability and lower rates, which can help you save money in the long run. However, an adjustable-rate mortgage (ARM) may be the better option for homebuyers planning to live in their home for less than five years or if interest rates are currently low. Fortunately, many Maryland mortgage lenders offer both options, but it still helps to know the pros and cons of ARM vs FRM.

 

What Is a Fixed-Rate Mortgage?

 

An FRM has a predetermined interest rate for the loan's duration. When it comes to different types of loan programs, many people opt for an FRM because it provides predictability and stability. Since the principal and interest costs in your monthly mortgage payment will stay constant throughout the entire term, your total monthly payment may fluctuate slightly due to changes in those fees.

 

Interest rates fluctuate daily due to many factors. For instance, as of today, interest rates are 3.125%. However, that number could go up or down tomorrow. With a fixed-rate mortgage, you don't have to worry about that movement. The interest rate on your loan doesn't change, regardless of what happens after you secure the loan.

While most homeowners opt for a 30-year FRM, terms can range anywhere from five to 30 years.

 

What Is an Adjustable-Rate Mortgage?

 

An ARM doesn't have set interest rates or terms like the FRM does. Instead, it has a fluctuating APR based on changes in market conditions and/or economic indicators such as inflation rates and employment numbers. Although you will have a set monthly payment amount, the interest rate will increase or decrease as these factors change.

 

In general, ARM loans have terms that limit how much interest can rise each year or over the life of the loan. For people who would want to keep the loan for a short period of time and can handle any possible rate hikes, an ARM may be a good financial decision.

 

ARM vs FRM: Which Is Right for You?

 

As stated above, there are many factors that contribute to choosing between ARM and FRM, including the loan type's terms. It helps if you're confident in your ability to handle interest rate changes with both types of mortgages.

 

If you want a stable financial situation where your mortgage payment won't fluctuate over time despite any movement in market, an FRM is the right move. However, if you're planning on staying in your home for a relatively short amount of time or if interest rates are already low, then an ARM may be a more sound financial decision.

 

Let Equity Mortgage Help You Decide on the Right Type of Mortgage

 

When it comes to ARM vs FRM, Equity Mortgage guides perspective homeowners on the right loan option for their situation. For questions about the loan process, call us today at 410-321-7800.