Fixed rate vs adjustable rate what are differences

With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an adjustable-rate mortgage (ARM), the interest changes periodically, typically in relation to an index. While the monthly payments that you make with a fixed-rate mortgage are relatively stable, payments on an ARM loan will likely change.

There is also a hybrid of the two, called a hybrid ARM or just a "fixed ARM." This type usually has an initial period where the interest rate is fixed and stable, but then adjusts after that term expires.

The ARM is for people wanting to afford more home now with the expectation that your income will increase, if you will be in your home for a short period, or if you believe that the rates will decline in the future.

Adjustable Rate Mortgages generally have rates that are initially lower than that of their Fixed Rate counterparts. This is to induce homeowners to share the risks of the ever moving interest rate market. By giving up the security of fixed payments that Fixed Rate Mortgages offer, Adjustable Rate Mortgage borrowers can enjoy lower initial payments.

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