Fixed-Rate and Adjustable Rate Mortgages: Which is Right for You?

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You’ve finally decided to join the millions of Americans who are enjoying the benefits of homeownership. You’ve even got your eye on that dream house, and the only thing standing between you and the keys is figuring out how to pay for it.

You’ve finally decided to join the millions of Americans who are enjoying the benefits of homeownership. You’ve even got your eye on that dream house, and the only thing standing between you and the keys is figuring out how to pay for it.

Shopping for a mortgage can be an intense experience. With so many different options, how do you go about choosing the one that’s right for you? As part of its ongoing mission to empower borrowers, LendingTree is offering the following information on two of the most common types of mortgages: fixed-rate and adjustable rate.

Fixed-Rate Mortgages

Fixed-rate mortgages allow you to borrow at an interest rate that stays constant over the life of the loan. The good news is that you have a consistent payment, so you can budget more easily with less risk because of payment stability. The bad news is that you may be missing out on a lower interest rate and may end up paying more money over the life of that loan. Fixed-rate mortgages are a good choice if you are in a rising interest rate environment and also if you plan on staying in your home for a long period of time.

Adjustable-Rate Mortgages

Adjustable-rate mortgages, more commonly known as ARMs, have rates that move up and down based on an index. Some popular indexes are Treasury Securities or the Certificate of Deposit Index (CODI). The upside to an ARM is if interest rates remain steady or decrease, the loan could be less expensive over time. Conversely, you assume the risk of having to pay more money if the interest rates rise. The initial fixed-rate period of an ARM can be as short as one month and as long as 10 years. AMRs are a good choice if your financial situation has the opportunity to improve during the fixed period of your loan. Then once your loan begins to adjust, if your payment increases due to interest rate hikes, you are better prepared for an increase in monthly payments.

In considering which loan is right for you, ask the following questions:

  • Is my income likely to rise enough to cover higher mortgage payments if interest rates go up?
  • Will I be taking on other sizable debts, such as a loan for a car or school tuition, in the near future?
  • How long do I plan to own this home? (If you plan to sell soon, rising interest rates may not pose the problem they do if you plan to own the house for a long time.)

For additional information on picking the right mortgage for you, please visit the LendingTree Knowledge Center.

About LendingTree, LLC

LendingTree®, LLC is the nation's leading online lending exchange, providing a marketplace that connects consumers with multiple lenders that compete for their business. Since inception, LendingTree has facilitated more than 16 million loan requests and $109 billion in closed loan transactions. LendingTree provides access to mortgages and refinance loans, home equity loans/lines of credit, auto loans, personal loans, and credit cards via http://www.lendingtree.com 800-555-TREE.

Founded in 1998 and headquartered in Charlotte, North Carolina, LendingTree, LLC is part of IAC Financial Services and Real Estate, an operating business of IAC/InterActiveCorp (NASDAQ: IACI), which also owns or operates LendingTree Loans, LendingTree Settlement Services, LLC®, GetSmart Lending® , RealEstate.com, Domania, and iNest.

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Allison Reed
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