Fixed-Rate VS Adjustable-Rate Mortgage

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What is the difference between fixed-rate mortgage and adjustable-rate mortgage and which one should you get?

Fixed-Rate Mortgage

This option features an interest rate that is fixed at a certain percentage throughout the life of the loan. Typically, the longer the term of the loan, the lower the monthly payments will be. You will have higher monthly payments with a shorter term. However you will realize a savings in the amount of interest you will pay over the life of the loan. Fixed-rate mortgages are recommended to borrowers who:

- Look for predictable payments because the payment is the same each month over the entire life of the loan.
- Are willing to pay a higher interest rate in return for protection against the possibility of rising interest rates.
- Are interested in building equity in their property through monthly principal and interest payments.

Adjustable-Rate Mortgages

This type of mortgage provides an interest rate and payment that periodically adjusts based on the current interest rate environment. You can tap the benefits of lower interest rates and payments in a falling interest rate environment and the initial interest rate on this type of loan is typically lower than the interest rate on a fixed-rate mortgage. Adjustable-rate mortgages are recommended for borrowers who:

- Seek extra borrowing power, based on a lower initial payment than is typically available with a fixed-rate mortgage.
- Want to take advantage of a lower monthly payment to save money.
- Plan to refinance or sell their property in a few years.

Your mortgage broker or lender can help you decide which option is best for your situation. Talk to one or more mortgage professionals and check out the current mortgage interest rates to use a comparison.

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