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Which is better for you— a fixed
or adjustable rate?
While your Lender will advise you on which mortgage might work
best, it's important for you to make the final decision. We've listed
some pros and cons of fixed and adjustable rate mortgages to help
you make your choice.
Fixed Rate Mortgages
With a fixed rate mortgage, the interest rate is set for the entire
term of the loan.
| PROS: |
- Future monthly payments are easy to project.
- Provides stability if you plan to be in your home for
a long time.
- If interest rates rise, yours remains the same.
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| CONS: |
- If interest rates drop, yours remains the same.
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Adjustable Rate Mortgages
The interest rate on an adjustable rate mortgage may be adjusted
periodically, usually in response to changes in the Treasury Bill
or the London Inter Bank Offering Rate (LIBOR). The interest rate
is fixed for a certain period of time (the adjustment period) and
then varies depending on market rates.
| PROS: |
- Lower initial payments.
- Ideal if you plan to own a home short-term.
- Fixed rate during adjustment period.
- If interest rates fall, your rate falls, too.
- May allow you to qualify for a larger loan.
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| CONS: |
- Less long-term stability.
- After the adjustment period, interest rates typically
rise
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When rates are low, an ARM may be the ideal choice if you know
you won't be living in your home for a long time. However, a fixed
rate mortgage can offer stability and long-term benefits that add
up over the years. So think carefully, and consider how long you
plan to live in your home while deciding which rate to choose.
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