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If you are choosing a new mortgage, one of the biggest decisions you will need to make is between a fixed-rate mortgage and an adjustable-rate mortgage. While the low upfront cost of adjustable-rate mortgages is tempting, the uncertainty of the future is a major risk.
What are the key differences between the two types of mortgages?
Fixed-rate mortgages have a set interest rate that will not change over the lifetime of the loan. While the principal and interest you pay on a month-to-month basis will change, the overall payment will stay exactly the same. In the earlier years of a fixed-rate mortgage, payments will primarily be applied to interest.
Fixed-rate mortgages can come in a number of term lengths including 15, 20 and 30 years. 30-year fixed-rate mortgages are the most popular because monthly payments are low, but the overall cost will be higher due to paying so much interest.
Adjustable-rate mortgages (ARMs) have variable interest rates. While the initial interest rate will be lower than the market rate, the rate will rise over time. If you have the mortgage for a long enough period of time, the interest rate will climb higher than the rates for fixed-rate mortgages.
ARMs have a fixed amount of time where the initial lower interest rate will stay stable. After that, the interest rate will change at a pre-set frequency (anywhere from one month to 10 years).
We are experienced in getting homeowners the best possible mortgage product for their situation. Since every client is in a different situation, we encourage you to get in touch and learn how we can help.
Contact us today by calling 443-471-4310. We look forward to hearing from you!
The post The Difference Between Fixed-Rate and Adjustable-Rate Mortgages appeared first on Owings Mills & Lutherville Mortgage.
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