Fixed vs. Adjustable Rates

Fixed Rate Mortgages

With fixed rates mortgage loans, the interest rate and your principal and interest payments remain fixed for the period of the loan. Fixed rate mortgages are available with 30-, 25-, 20-, 15-, and 10-year repayment terms. Generally, the short-er the term of a loan, the lower the interest rate is.

The most popular mortgage terms are 30 and 15 years. With the traditional 30-year fixed rate mortgage, your monthly payments are lower than they would be on a shorter-term loan.

Adjustable Rate Mortgages

The interest rate of variable or adjustable rate loans—and accordingly, the monthly payments—fluctuate over the pe-riod of the loan. With this type of mortgage, periodic adjust-ments based on changes in a defined index are made to the interest rate. The index for your particular loan is estab-lished at the time of application.

Intermediate ARMs are referred to as 3/1, 5/1, 7/1 and 10/1 loans. Each of these has a term of thirty years, each has a fixed rate for a specific period of time, and at the end of the fixed rate term each adjusts to an adjustable rate mortgage for the remainder of the thirty year term. In other words, a 3/1 ARM would have a fixed rate for three years and an adjustable rate for 27 years, a 5/1 would have a fixed rate for five years and an adjustable rate for 25 years, and so on.