Fixed-Rate and Adjustable Rate Mortgages (ARM)

What’s the difference between a Fixed-Rate Mortgage and an Adjustable-Rate Mortgage?

As noted in the orange and blue boxes below, “Fixed-Rate” and “Adjustable-Rate” are descriptions that can apply to different types of loans, like a Fixed-Rate FHA Loan or a 5/1 ARM VA Loan. The basic distinction is this:

  • Fixed-Rate Mortgage: The rate and mortgage payment amount stay the same over the entire term (length) of the loan.
  • Adjustable-Rate Mortgage: The rate and mortgage payment stay the same for the initial fixed period (such as 5 years), after which the rate and payment may periodically adjust up or down. For example, for a 5/1 ARM, the rate and payment are fixed for the initial 5-year period, after which they may adjust up or down every year until the end of the loan term.

A Fixed-Rate Mortgage includes:

FHA, Conventional, VA, USDA, Jumbo, Refinance, Renovation, and State Housing Agency Loans

Fixed-Rate Mortgage benefits and features

  • Is often a good choice for those planning to be in their house for more than 10 years.
  • Predictability: The interest rate and mortgage payments are the same over the entire term of the loan.
  • Terms range from 10 to 30 years.
  • Other requirements and conditions apply.

An Adjustable-Rate Mortgage (ARM) includes:

FHA, Conventional, VA, Jumbo, and Refinance Loans

Adjustable-Rate Mortgage benefits and features

  • May be a good choice for those planning to move before the end of the initial fixed period.
  • An ARM occasionally has a lower interest rate and monthly payment than Fixed-Rate Mortgage for the initial fixed-rate period. 
  • Payment caps limit the amount of rate change that can occur in certain time periods.
  • Borrowers can refinance at the end of the initial fixed period.
  • Other requirements and conditions apply.
See sample scenarios here

CALL YOUR ACADEMY LOAN OFFICER today for more information about Fixed- and Adjustable-Rate Mortgages and about which type of loan and rate program will best help you achieve your goals.