What is the difference between a fixed rate and an adjustable rate mortgage?

In North Carolina, the difference between a fixed rate and an adjustable rate mortgage (ARM) is important to understand. A fixed rate mortgage is a loan where the interest rate is set for the life of the loan and will not change. This means that the monthly payments for the loan will remain the same amount throughout the life of the loan. On the other hand, an adjustable rate mortgage is a loan where the interest rate can change periodically, often tied to an index like the U.S. Treasury bill rate. The interest rate may be lower initially than a fixed-rate loan, making it attractive for people who are expecting to move in the near future or those who wish to keep their payments low. However, the payments can change both up and down as the interest rate is adjusted, and the initial lower rate may no longer be available after the initial period. It is important to remember that a fixed rate loan protects the borrower from fluctuating interest rates while an ARM can provide a lower rate initially, but also carries the risk that the payments could rise as the interest rate adjusts. Therefore, before selecting a loan it is important to analyze both the risks and rewards of each type of loan and choose the one that best fits your individual circumstances.

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What is the difference between a fixed rate and an adjustable rate mortgage?

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