So which is better, an ARM or a fixed-rate mortgage?

Both types of home loans have their good bits and slightly less good bits. It might help to see a list of pros and cons then you can decide which one matches your goals and personality type.

 

• PRO of fixed rates: You get the security of always knowing what your rate will be and your monthly payment will also stay the same. This makes budgeting simple.

• CON of fixed rates: The starting rate for a fixed-rate mortgage is usually slightly higher than for an ARM.

• CON of fixed rates: Your rate will sometimes be higher or lower than the market rates – so sometimes you might feel like you’re getting a bargain and other times you might wish your rate was free to drop.

 

• PRO of ARMs: The starting rate for an ARM is usually lower than for a fixed-rate mortgage and it will stay this way for an agreed amount of time, so you can plan for a possible increase when your rate starts adjusting.

• PRO of ARMs: You might be able to borrow more than for a fixed-rate mortgage.

• PRO of ARMs: You might be able to get a whopping 40-year term.

• CON of ARMs: Once your rate starts adjusting, consider yourself seated on a gentle rollercoaster, going up and down as the markets run their natural course.