Understanding Mortgage Types
Choosing between a fixed-rate mortgage and an adjustable-rate mortgage (ARM) affects your long-term financial stability. Understanding the pros and cons of each can help you make the right decision.
1. Fixed-Rate Mortgage
A fixed-rate mortgage keeps your interest rate the same for the loan’s duration.
Pros:
✔ Predictable monthly payments
✔ Protection from rising interest rates
✔ Easier budgeting
Cons:
✖ Higher initial interest rates than ARMs
✖ May miss out on potential rate drops
2. Adjustable-Rate Mortgage (ARM)
An ARM offers a lower initial interest rate, which adjusts periodically based on market rates.
Pros:
✔ Lower starting interest rates
✔ Potential to save if rates stay low
Cons:
✖ Payments may increase over time
✖ More financial uncertainty
3. Which Mortgage Is Right for You?
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Choose a fixed-rate mortgage if you want stability and plan to stay long-term.
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Choose an ARM if you plan to move soon or expect interest rates to remain low.
Final Thoughts
Understanding the pros and cons of a fixed-rate mortgage vs. adjustable-rate mortgage ensures you make the best decision for your financial future. Weigh your long-term goals and risk tolerance before choosing a mortgage type.
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