Fixed-Rate vs. Adjustable-Rate Mortgages

Choosing a mortgage involves more than comparing today’s interest rates. Consider how long you expect to keep the loan, your budget, and your ability to handle future payment changes.

What is a fixed-rate mortgage?

A fixed-rate mortgage keeps the same interest rate throughout the loan term. On a standard, fully amortizing fixed-rate mortgage, the scheduled principal-and-interest payment remains the same.

Your total monthly payment can still change if property taxes, homeowners insurance, mortgage insurance, or escrow requirements change. HOA or condominium dues may also change, whether paid separately or included in your housing budget.

With regular scheduled payments, the portion applied to principal generally increases over time as the interest portion decreases.

A fixed-rate mortgage may suit borrowers who value predictable principal-and-interest payments and protection from future interest-rate increases.

What is an adjustable-rate mortgage?

An adjustable-rate mortgage, or ARM, has an interest rate that can change according to the loan agreement. Many ARMs begin with a fixed-rate period, followed by scheduled adjustments.

For example:
• A 5/1 ARM generally has an initial fixed rate for five years, followed by annual adjustments.
• A 5/6 ARM generally has an initial fixed rate for five years, followed by adjustments every six months.

These examples explain the terminology. Available programs and specific terms vary by lender.

How does the rate adjust?

After the initial fixed period, the rate is generally determined by adding a margin specified in your loan agreement to a published index, subject to the loan’s caps and any minimum rate.

Depending on those terms and changes in the index, your rate and principal-and-interest payment may increase or decrease.

What do rate caps do?

An ARM’s rate caps limit how much the interest rate can change. Review:
• The limit on the first adjustment.
• The limit on subsequent adjustments.
• The maximum rate over the life of the loan.
• Any minimum rate.

Caps limit changes; they do not guarantee that a future payment will remain affordable.

When might an ARM make sense?

An ARM may offer a lower initial rate than a comparable fixed-rate mortgage, but that is not guaranteed.

It may be worth considering if you understand the adjustment terms and can manage potential payment increases. Your expected ownership period matters, but plans can change.

Do not rely solely on selling or refinancing before the rate adjusts. A future refinance depends on your eligibility, property value, available programs, market rates, and closing costs.

Compare the full picture

Before choosing, compare:
• Interest rate, APR, points, lender credits, and closing costs.
• Initial payment and potential future payments.
• Length of the initial fixed period and adjustment frequency.
• Rate caps, minimum rate, and maximum possible rate.
• Your budget if you keep the loan longer than expected.

We help you understand the options

Platinum Advantage Mortgage helps buyers and homeowners throughout Florida compare available purchase and refinance programs.

Call 407-341-4313 or email rjolley@platinumadm.com.

Loan approval is subject to lender underwriting requirements. Rates, terms, and program availability are subject to change.