If you’ve never applied for a mortgage before, you might be surprised at the number of options you have. One choice you’ll have to make? How your interest rate will be determined.
There are two common options: A fixed-rate mortgage or an adjustable-rate mortgage (also called an ARM).
A fixed-rate mortgage is true to its name: No matter how long the term of your mortgage, the interest rate you’ll be charged won’t change. You’ll make a consistent payment on your mortgage each month no matter whether you’re in the first year of the loan or the 20th. Fixed-rate mortgages offer security and stability. Don’t worry that you’re stuck there; if the rates drop significantly, you can refinance.
An adjustable-rate mortgage has a lower initial mortgage rate, but don’t expect it to stay there. The rate can adjust up or down at predetermined intervals. This can allow you to qualify for a bigger loan than you could with a fixed-rate mortgage, but it does come with uncertainty.
Which mortgage type is right for you? It depends on how long you plan to stay in your home and what your tolerance for uncertainty is. Talk with your mortgage professional to make the right decision for your specific situation.