5 Questions to Ask When Choosing Between a Fixed and Adjustable Rate Loan

Fixed rate and adjustable rate mortgages have similarities and. Here are some concepts borrowers need to know before selecting an ARM.. a fixed rate mortgage, at least for the first three, five or seven years.. To put your loan selection into the context of these factors, consider the following questions:.

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Choosing Between Fixed vs. Adjustable . So how do you decide which type of loan is right for you? In order to get past the fixed-rate vs. adjustable mortgage dilemma, you need to think about your long-term plans. This is the key to choosing the right type of loan. Consider the two scenarios below: For a Longer Stay.

A 15-year fixed mortgage will have an interest rate of around 3 percent. The second type is an adjustable rate. percentage of the total loan, usually between .5 and 1 percent. The Good Faith.

This is an important question to ask yourself when choosing between fixed-rate mortgages and variable-rate mortgages (of inherently higher risk). The initial monthly payments on a variable-rate mortgage might be something you can afford with your current income. But if the maximum possible monthly payment for this loan, determined by the caps set to limit the amount the interest can change, is outside of your price range, a fixed-ratemortgage is the safer choice for you.

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Adjustable-Rate Mortgage (ARM) What this means is that the rate is fixed for the first five years, and then the interest rate and payment are reset every year thereafter. With this loan, the maximum increase in any year (after the first five) is limited to 2% and the maximum increase during the life of the loan is limited to 6%.

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Final Word. Adjustable rate mortgages are riskier than fixed-rate mortgages. Before you apply for a 5/1 ARM or a 10/1 ARM, it’s important to do plenty of research. Understanding how ARMs work can help you decide whether it makes sense to get one.

Choosing between a fixed and adjustable rate loan is not as easy as it may seem. Here are 5 questions to ask when weighing the pro’s and con’s.