Choosing a Fixed-Rate or Adjustable-Rate Loan

Robert Cohan
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Trying to decide between a fixed-rate and an adjustable-rate mortgage? Knowing the right questions to ask your lender can simplify this decision for your next purchase or refinance loan.

Understanding the differences between fixed rate mortgage and adjustable rate mortgage

Before you make a decision, be certain you understand the particulars of each type of mortgage loan to know the best choice between a Fixed-Rate or Adjustable-Rate Loan.

  • A fixed-rate mortgage (FRM) has the same interest rate for the entire loan term. It’s typically offered as a 30-year loan, though 15- or 20-year loans are also common – especially if you have a large down payment or already have substantial equity.
  • An adjustable-rate mortgage (ARM) has an interest rate that adjusts after an initial fixed-rate period. Typical fixed-rate periods can be 5, 7 or 10 years. Once the fixed-rate period ends, rate changes are based on current market conditions. Your monthly payment can increase or decrease depending on rate changes.

Fixed Rate Mortgage or Adjustable Rate Mortgage: Decide which loan is best for you?

Step 1: Start by asking yourself the following questions:

  • How long do you plan to stay in the home? If you’re fairly certain when you’ll move, consider matching your move date with the fixed-rate period of an ARM.
  • Do you foresee any substantial changes in your income or expenses over the next 5-10 years?

A budget estimate is an important preliminary step that can affect your mortgage choice.  Think about your career path, kids and also other loans (like student or car loans) you may pay off in the meantime.

  • Are you comfortable knowing your interest rate will adjust down the road? It’s wise to gauge your comfort level.

Step 2: Chat with your mortgage banker

Sit down with one of our mortgage bankers to weigh the pros and cons of fixed rate mortgage and adjustable rate mortgages. We’ll help you review your financial objectives and mortgage needs, and determine what the best solution is for your needs.

Do you already have a mortgage loan? Tell us how you chose your loan type based on the pros and cons of fixed rate and adjustable rate loan by adding your comments below.

 

Learn about the benefits of refinancing your home

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Robert Cohan

Robert Cohan is driven by a belief that solutions aren’t just found – they are carefully crafted. As…
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About Robert Cohan

Robert Cohan is driven by a belief that solutions aren’t just found – they are carefully crafted. As President of Carlyle Financial, he ensures that the firm’s mortgage solutions are elegantly simple, yet flexible enough to provide custom options for our clients.

Robert is an experienced mortgage professional and industry innovator. He developed his passion for providing extraordinary service for extraordinary clients as a top mortgage professional for several national banks, including Bank of America, Washington Mutual (now J.P. Morgan Chase) and Wells Fargo Home Mortgage, where he became the first loan officer to open a mortgage-only storefront on Canon Drive in the heart of the Beverly Hills triangle.

After working with hundreds of clients at multiple national and regional banks, Robert saw the limitations of the big bank mono-channel model and developed his own lending and service philosophy. His trailblazing approach led to the founding of Carlyle Financial, where he could continue his commitment to customized home loans while changing the way his clients experienced the mortgage process. He is based in the San Francisco headquarters at One Market Plaza.

Robert has been recognized as a leading jumbo mortgage expert in The Wall Street Journal, Business Insider, Investor’s Business Daily, and many other publications. He is also active in his community, committing time and resources to causes that align with his philanthropic values. When he isn’t helping clients structure their next home, you can find Robert on the basketball court coaching youth league kids on their jump shot.