Perennial Funding > Blog > Mortgages > Difference between Fixed-Rate and Adjustable-Rate

Difference between Fixed-Rate and Adjustable-Rate

The two most common words you’ll come across while securing a loan are Fixed-Rate and Adjustable-Rate. Each provide advantages to the borrower, depending on their situation. Our goal at Perennial Funding is to provide information for our clients. In turn, our borrowers will be more comfortable working with us to secure a loan.

First, let’s discuss Adjustable-Rate mortgages, otherwise known as ARMs. ARMs are as they imply, adjustable being the key word. Adjustable-Rate mortgage payments vary as time passes. Typically, these loans are more affordable than Fixed-Rate mortgages because the initial payment is less.

The benefits of this loan tend to be lower payments in the initial payment periods. Both rates and payments will be low at the start of loan term. As a result, people can buy a larger home than they could without an ARM.

Though the rates could rise further on in the loan term, there are benefits to varying rates. No one wants to see rates rise, but rates aren’t always rising. Rates can drop and borrowers are able to take advantage of the lower payments without refinancing. As opposed to Fixed-Rate, where refinancing would be the only option to lower payments, ARMs simply take advantage of the lower rates. This in turn removes any potential closing costs from refinancing.

Fixed-Rate mortgages are the exact opposite of ARMs. With a Fixed-Rate mortgage, whatever rate is set to purchase a loan will be the rate throughout the loan term. If the rates rise, your payments will not differ.

The major benefit of these loans are stability. Borrowers who are rigid budgeters or simply want to keep consistent payments will benefit significantly from this loan type. This makes this loan easy to understand, whereas an ARM can be more difficult as the rates will vary. Fixed-Rate borrowers do not worry about the market or rates; rather, their payment will be the same as the one before.

Adjustable-Rate mortgages and Fixed-Rate Mortgages are beneficial in their own ways. Yet, the most important factor in both loans is the borrower. If properly presented, borrowers should have no worry with either loan as the loan will be customized for the borrower. Loans should only be procured when they meet the borrower’s financial situation. For further information, please call (888) 496-7291. A Perennial Funding mortgage specialist will gladly address any concerns or questions you may have.

Topic Reason: With little to no knowledge of loans, I found myself researching these terms the most. I wish I could convey the fact that I am in their position, but that wouldn’t be wise considering they’re reading this post on a mortgage website. They don’t want to know someone with limited knowledge is writing this. That being said, I feel my lack of knowledge is the exact approach to take on these blog posts. Of course you can go in and edit the information to your liking, but my approach is from the borrower’s position. They are not financial experts, nor am I. Basically, my concerns while understanding this unfamiliar industry are similar to unknowledgeable borrowers. Hence, a better understanding of these rates is crucial.

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*By refinancing your existing mortgage your total finance charges may be higher over the life of the loan.

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