Fixed Rate Mortgages Vs Adjustable Rate Mortgages (ARM)

Things to Consider When Deciding For a Mortgage

Deciding to either buy or build your own house will need the availing of a home mortgage but before venturing into taking one, be sure that you know all the options on the market. This thing will ask from you plenty of caution once you are looking for a particular form of mortgage loan with so many choices available out there.

More knowledge can be obtained with either reading or calling for a professional or even both that will lead you to various mortgage plans being able to discern which one won’t represent our financial drain for the future.

The fixed rate mortgage is the the one that is the most reachable as it has an interest rate that stays the same on a fixed period of time when the loan is paid. This period can go from 15, 20 to 30 years although most people opt for 30 years.

There is the benefit of a lower monthly installments, but at the same time there is also an increased total interest paid as long as the time period is increased. Overall you will pay less interest if the period is shorter, although the monthly installments are high.
The adjustable rate mortgage (ARM) is a mortgage type with a variable interest rate. This one adjusts according to various market conditions, such as bank prime rate and others. This adjustable rate has an interest rate connected to a money market index decided by National Average Contract Mortgage Rate, Treasury Bill and so on. The lender will add a 1.5 to 2.5% to the index and as such they set the adjustable rate mortgage.

You need to know that the interest rate changes according to the market index, but there is however a limit in this: the borrower and lender will agree on the frequency of these changes. Most of the time there is 1 year given to adjust the interest rate, but there can be also from one month to 10 years.
The ARM should have a free changing interest rate with every change that appear in the index interest rate, but in fact it is not free of this. But in here there is also a limitation of the time inside the period of the loan.

Let’s say that the index interest rate will be down by 6%, then the interest rate in ARM will be leveled down by no more than 3 or 4% as it has been previously agreed by the lender and the mortgage borrower. Some of these ARMs come also with a maximum amount that a borrower should pay over the duration of a loan. But this one is specified mostly in dollars rather than in percentages.

Deciding to either buy or build your own house will need the availing of a home mortgage but before venturing into taking one, be sure that you know all the options on the market. This thing will ask from you plenty of caution once you are looking for a particular form of mortgage loan with so many choices available out there.


More knowledge can be obtained with either reading or calling for a professional or even both that will lead you to various mortgage plans being able to discern which one won’t represent our financial drain for the future.


The fixed rate mortgage is the the one that is the most reachable as it has an interest rate that stays the same on a fixed period of time when the loan is paid. This period can go from 15, 20 to 30 years although most people opt for 30 years.


There is the benefit of a lower monthly installments, but at the same time there is also an increased total interest paid as long as the time period is increased. Overall you will pay less interest if the period is shorter, although the monthly installments are high.


The adjustable rate mortgage (ARM) is a mortgage type with a variable interest rate. This one adjusts according to various market conditions, such as bank prime rate and others. This adjustable rate has an interest rate connected to a money market index decided by National Average Contract Mortgage Rate, Treasury Bill and so on. The lender will add a 1.5 to 2.5% to the index and as such they set the adjustable rate mortgage.


You need to know that the interest rate changes according to the market index, but there is however a limit in this: the borrower and lender will agree on the frequency of these changes. Most of the time there is 1 year given to adjust the interest rate, but there can be also from one month to 10 years.
The ARM should have a free changing interest rate with every change that appear in the index interest rate, but in fact it is not free of this. But in here there is also a limitation of the time inside the period of the loan.


Let’s say that the index interest rate will be down by 6%, then the interest rate in ARM will be leveled down by no more than 3 or 4% as it has been previously agreed by the lender and the mortgage borrower. Some of these ARMs come also with a maximum amount that a borrower should pay over the duration of a loan. But this one is specified mostly in dollars rather than in percentages.

categories Mortgage and Home Loans | July 13, 2010

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