{"id":3816,"date":"2024-09-18T12:29:01","date_gmt":"2024-09-18T17:29:01","guid":{"rendered":"https:\/\/tomo.com\/blog\/?p=3816"},"modified":"2025-02-10T13:11:22","modified_gmt":"2025-02-10T18:11:22","slug":"whats-better-a-fixed-rate-or-adjustable-rate-mortgage-also-known-as-arm","status":"publish","type":"post","link":"https:\/\/tomo.com\/blog\/whats-better-a-fixed-rate-or-adjustable-rate-mortgage-also-known-as-arm\/","title":{"rendered":"What\u2019s better\u2014a fixed rate or adjustable-rate mortgage (also known as an ARM)?"},"content":{"rendered":"\n

A fixed rate mortgage locks in your interest rate<\/a> for the entire loan term, so your interest rate stays\u00a0 the same no matter what happens in the market.<\/p>\n\n\n\n

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Adjustable mortgage rates, or ARMs, start off with a fixed interest rate for a set period\u2014usually 5, 7, or 10 years\u2014then adjust periodically based on the market. This means your monthly payments can go up or down after the initial fixed-rate period ends. <\/p>\n\n\n\n

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ARMs are a gamble: you could save money if rates stay low, but you\u2019re taking a risk if they rise.\u00a0<\/h3>\n\n\n\n

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Adjustable Rate Mortgages (ARMs) can be a double-edged sword. They often start with a lower interest rate compared to Fixed Rate Mortgages, but that rate is like a ticking time bomb\u2014it can change. When the initial fixed period ends, your rate could shoot up, causing your payments to fluctuate. This unpredictability can mess with your budget and long-term financial plans.<\/p>\n\n\n\n

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Now, you could dodge this in theory by refinancing if rates are lower in the meantime, but there\u2019s additional costs associated with any kind of refinance. While some lenders promise a \u201cfree refinance,\u201d what they\u2019re really talking about is a refinance with \u201cno added lender fees\u201d (which they really shouldn\u2019t charge in the first place). There\u2019s still plenty of closing costs associated with any kind of refinance, so it\u2019s not an easy out if rates suddenly spike.<\/p>\n\n\n\n

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Let’s break it down…<\/h4>\n\n\n\n

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For a home priced at $450,000 with a 10% down payment<\/a> ($45,000), the loan amount would be $405,000. The initial fixed-rate mortgage is set at 6.5%, while the starting rate for an ARM is 5.0%.<\/p>\n\n\n\n

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When things go your way (rates drop)<\/h4>\n\n\n\n

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  1. Initial ARM Rate:<\/strong> 5.0%<\/li>\n\n\n\n
  2. Initial Fixed Rate:<\/strong> 6.5%<\/li>\n<\/ol>\n\n\n\n

    Initial monthly payments:<\/strong><\/p>\n\n\n\n