When it comes to mortgages, there are two kinds of rates—fixed and adjustable. Learn more about each of them below.
Fixed Rate Mortgage
If you are planning to own your home for at least 7 years, the fixed rate option is likely best. With this type of rate, the total amount of your principal plus interest will not increase for as long as you have your loan. With a fixed rate mortgage, you can also enjoy:
- Rate protection: Your rate will stay the same even if mortgage rates go up.
- Payment stability: You’ll always know what your monthly payment is going to be.
- Budgeting ease: Since your payment doesn’t fluctuate, budgeting your mortgage expense will be easier.
- Earlier pay-off: Even with a fixed rate, you can always make extra payments to pay off your loan sooner.
Adjustable Rate Mortgage
With an adjustable rate mortgage, your loan interest rate may fluctuate over time but only after an initial "fixed" period, typically 5 or 7 years. With this type of rate, you can enjoy:
- Lower rates: The interest rate is often lower than for other loans during the fixed period.
- Lower payments: When your interest rate is low during the fixed period, your payments will also be lower.
- Lower cost: This option keeps your payment lower if you are planning to own your home for only 5 to 7 years.
- Rate caps: You may have options to control how much your rate can increase.