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Fixed vs ARM

 

 

 

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Fixed Rate vs. Adjustable Rate Mortgages

 

 


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

The interest rate on a mortgage loan is primarily structured in one of two ways - either through fixed payments or variable payments. The fixed payment method is known as a fixed-rate mortgage and uses a single, unchanging rate to determine the interest paid back on a mortgage loan. The variable rate structure is known as an Adjustable Rate Mortgage, and is slightly more complex, based off a rate that changes according to a published index.


FIXED-RATE MORTGAGES

A fixed rate mortgage is a loan option where the interest rate on the loan remains the same, or is 'fixed', throughout the entire term of the loan. A fixed rate mortgage gives borrowers who want relatively consistent payments the consistency needed to effectively maintain a long-term budget, while also allowing them to lock in a low rate, if available.

We offer fixed rate mortgages for loan terms ranging from 5 years to 30 years. Because the rate is unchanging, the length of the term ultimately determines the amount of your monthly payments. With a shorter term loan, like a 5 year or 10 year, you will have less payments than you would with a longer term loan, but the monthly payment amount will be higher because the payback time is condensed. This loan type is most popular among those who plan to live in their newly purchased home for more than 5-10 years and want a lower monthly payment.

 

ADJUSTABLE RATE MORTGAGES (ARM)

With an adjustable rate mortgage, the interest rate on the loan is initially set at a fixed-rate for a certain period of time, and is followed by a variable rate - periodic adjustments that are made based off the current index value. If interest rates are high and likely to fall, buyers can take advantage of falling rates without having to refinance. Conversely, if rates are low and likely to rise, buyers could be subject to making much higher payments after the rate adjusts.

Often having a lower initial interest rate than a fixed-rate mortgage, an adjustable rate mortgage is ideal for buyers who plan to sell their home after a few years. We currently offer 1-year, 3-1-year, and 5-1-year adjustable rate mortgages.  

 

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Cinfed Credit Union
4801 Kennedy Avenue
Cincinnati, OH 45209
(513) 333-3800
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