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

In Arizona, when purchasing residential real estate, one of the important decisions to make is what type of mortgage to use. The two main types of mortgages are fixed-rate and adjustable-rate. A fixed-rate mortgage is one in which the interest rate for the loan is fixed at the time of purchase and will not change for the entire length of the loan. This allows the borrower to know exactly how much their monthly payment will be for the duration of the loan. It also offers the borrower protection if interest rates go up in the future. An adjustable-rate mortgage (also known as an ARM) is one in which the interest rate can change over time. The interest rate is typically tied to an index such as the U.S. Treasury or LIBOR. The rate is adjusted periodically based on changes in the index. This type of mortgage can offer a lower initial interest rate than a fixed-rate mortgage, but the borrower runs the risk of the interest rate increasing in the future if the index goes up. Overall, fixed-rate mortgages offer a greater sense of security as the interest rate and monthly payment will remain the same, while adjustable rate mortgages can offer initial savings but are riskier due to the potential for increased payments if the index changes. It is important to consider both options before deciding which type of mortgage is best for you.

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

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