Fixed and Adjustable Rate Mortgages

Fixed- and adjustable-rate mortgages are two of the most popular loan types for buying or refinancing a home. Both options are available for conventional conforming loan amounts, non-conforming loan amounts ("jumbo"), and FHA or VA programs.

Fixed-rate mortgage

Features

  • Your interest rate and monthly principal and interest (P&I) payments remain the same for the life of your loan
  • Available in a variety of loan term options

Benefits

  • Predictable monthly P&I payments allow you to budget more easily
  • Protection from rising interest rates for the life of the loan, no matter how high interest rates go
  • May be a good choice if you plan to stay in your home for a long time

Considerations

  • The overall interest you pay is higher on a longer-term loan than on a shorter-term loan
  • On a shorter-term loan, the monthly P&I payment is typically higher than on a longer-term loan

 

Adjustable-rate mortgage

Features

  • Your interest rate and monthly principal and interest (P&I) payments remain the same for an initial period of 3, 5, 7, or 10 years, then adjust annually
  • Includes an interest rate cap that limits how high your interest rate can go

Benefits

  • Typically ARMs have a lower initial interest rate than on a fixed-rate mortgage
  • The interest rate cap limits the maximum amount your P&I payment may increase at each interest rate adjustment and over the life of the loan
  • May provide flexibility if you expect future income growth or if you plan to move or refinance within a few years

Considerations

  • Monthly principal and interest payments may increase when the interest rate adjusts
  • Your monthly principal and interest payments may change every year after the initial fixed period is over