The interest rate on your mortgage determines your monthly payment for decades. Choosing between fixed and variable rates is a gamble on the future economy.
Fixed-Rate Mortgages (FRM)
The interest rate never changes. Your principal and interest payment remain the same for 15 or 30 years. Pros: Stability and predictability. Cons: Generally higher starting rate.
Adjustable-Rate Mortgages (ARM)
The rate is fixed for a period (e.g., 5 years), then adjusts annually based on the market. Pros: Lower initial rate. Cons: Risk of payments skyrocketing if rates rise.
Frequently Asked Questions
What is the difference between fixed and variable rates?
Fixed rates stay the same; variable rates can change with the market.
How much down payment do I need?
Typically 20% to avoid PMI, but some loans allow as low as 3-3.5%.
Should I pay off my mortgage early?
It depends on your interest rate versus potential investment returns.
Conclusion
If you plan to stay in the home long-term, fixed rates offer safety. ARMs can be a strategic tool for short-term ownership, but know the risks.