Adjustable vs. Fixed-Rate Mortgages: Which One is Right for You?
Fixed-Rate vs. Adjustable-Rate Mortgages: Which One is Right for You?
When buying a home, one of the biggest financial decisions you’ll make is choosing the right mortgage type. The two main options—fixed-rate mortgages (FRMs) and adjustable-rate mortgages (ARMs)—each have their own advantages and risks. Based on your financial goals, market conditions, and how long you plan to stay in your home, one may be a better fit than the other. Here’s what you need to know.
Fixed-Rate Mortgages (FRMs)
A fixed-rate mortgage offers stability because the interest rate stays the same for the entire loan term. I often recommend this option to buyers who plan to stay in their home for a long time and prefer predictable payments.
Why Choose a Fixed-Rate Mortgage?
✔ Predictable Payments – Your monthly principal and interest stay the same, making it easier to budget long-term.
✔ Protection Against Rate Increases – Even if interest rates go up in the future, your rate and payments remain unchanged.
✔ Easy to Understand – There are no surprises or adjustments, making it a great option for first-time homebuyers.
Potential Downsides:
⚠ Higher Initial Rates – Compared to ARMs, fixed-rate mortgages tend to have higher starting interest rates.
⚠ Less Flexibility – If interest rates drop significantly, refinancing may be necessary to secure a lower rate, which can involve additional costs.
Adjustable-Rate Mortgages (ARMs)
An adjustable-rate mortgage typically starts with a lower interest rate for a set period (e.g., 5, 7, or 10 years) before adjusting based on market conditions. This can be a smart option for buyers who expect to move or refinance before the rate starts adjusting.
Why Choose an Adjustable-Rate Mortgage?
✔ Lower Initial Rates – ARMs usually start with lower interest rates than fixed-rate loans, leading to lower initial monthly payments.
✔ Good for Short-Term Homeowners – If you plan to sell or refinance before the adjustment period, you can benefit from the lower introductory rate.
✔ Potential for Lower Payments – If interest rates drop over time, your rate and payments could decrease.
Potential Downsides:
⚠ Rates Can Increase – Once the initial fixed period ends, your interest rate can adjust upward, increasing your payment.
⚠ Less Predictability – Since future interest rates are uncertain, budgeting can be more challenging.
⚠ More Complexity – ARMs come with different adjustment periods, caps, and indexes, which can make them harder to understand.
Which Mortgage is Right for You?
Deciding between a fixed-rate and an adjustable-rate mortgage depends on your financial situation, future plans, and comfort level with risk.
💡 A Fixed-Rate Mortgage Might Be Best If:
✔ You plan to stay in your home long-term.
✔ You want the security of stable payments.
✔ You prefer to avoid the risk of rising interest rates.
💡 An Adjustable-Rate Mortgage Might Be Best If:
✔ You plan to move or refinance before the fixed-rate period ends.
✔ You want lower initial payments.
✔ You’re comfortable with potential rate adjustments in the future.
Not sure which mortgage option is right for you? Let’s talk! I can connect you with trusted mortgage professionals who can help you explore your options.
📞 Call or text me at (206) 751-2223
📧 Email: [email protected]
🌐 Sign up for my Home Buyer Class to learn more: https://www.myseattlesearch.com/events-and-classes
Joe Sheldon, Real Estate Broker
Designed Realty
Phone: (206) 751-2223
Email: [email protected]
