Fixed vs. Adjustable Mortgage Rates: Which is Right for You?

Fixed vs. Adjustable Mortgage Rates

When you’re in the market for a new home, one of the first decisions you’ll need to make is whether to go with a fixed or adjustable mortgage rate. Both have pros and cons, so it’s essential to understand the difference before deciding. Keep reading to learn more about fixed vs. adjustable mortgage rates to decide which is right for you.

What is a fixed mortgage rate?

A fixed mortgage rate is just what it sounds like: the interest rate on your loan will be fixed for the life of the loan. The majority of all hard money loans operate on fixed rates. This means that your monthly payments will never increase, no matter what happens with interest rates on the broader market. The tradeoff is that you’ll usually get a higher interest rate with a fixed mortgage than with an adjustable-rate mortgage.

Fixed Mortgage Rate Advantages

•A fixed-rate mortgage has an interest rate that remains the same for the life of the loan, which can be advantageous for borrowers.
• Fixed-rate mortgages offer stability and predictability.
•Fixed-rate mortgages are widely available from most lenders.

What is an adjustable mortgage rate?

On the other hand, an adjustable mortgage rate starts at a lower interest rate than a fixed mortgage. However, that low rate only lasts for a certain period—usually five years—after which it will begin to adjust upwards based on changes in the broader market. That means your monthly payments could increase over time, making it difficult to budget your housing costs in the long term.

Adjustable Mortgage Rate Advantages

  • Great for getting into a home you plan to fix and flip
  • If interest rates go up during the life of your loan, your monthly payments will not increase until the end of the initial fixed period (usually 3, 5, 7, or 10 years).
  • If you plan to sell in a few years, you could save hundreds of dollars monthly on the interest rate.

Which is right for you?

The answer to this question depends on some factors, including your current financial situation and your plans for the future. If you’re buying a home that you expect to stay in for many years, then a fixed mortgage may be the right choice so that you can lock in a low-interest rate and know exactly what your budget will be each month.

On the other hand, if you’re buying a starter home or you’re not sure how long you’ll stay in your current residence, then an adjustable mortgage could save you money in interest payments over the short term while still giving you some protection against rising rates in the future.

Choose The Right Loan For You

When choosing between fixed vs. adjustable mortgage rates, there’s no one-size-fits-all answer—it all depends on your circumstances. If you’re unsure which type of mortgage is right for you, talk to your lender or financial advisor to get professional guidance on making this critical decision.