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Text, Navy Federal Credit Union.
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Navy Federal Credit Union. Home buying-- the difference between fixed-rate and adjustable-rate home loans.
When you buy a house, you have to make a lot of choices. Which neighborhood? How many bedrooms?
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A blueprint of a house
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How many baths? When you're looking for a home loan, you have choices, too. Here's a look at two of the most common mortgages, fixed-rate and adjustable-rate home loans.
With a fixed-rate, your interest rate and your payments stay the same throughout the life of the loan. Who chooses a fixed-rate home loan? People who like the stability of the same payment each month, those who plan to stay in the same house for a long time, and those who want to lock in an interest rate in case they rise.
What about an adjustable-rate mortgage? Also called an ARM, it usually has a lower interest rate at the beginning.
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A calendar with the heading 2 to 10 years. The hands on a clock continuously spin.
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That initial period can last anywhere from 2 to 10 years. After that, the lender can adjust the interest rate at specific times, which means your payments could change, up or down, until you pay off the loan. But there's a maximum amount a lender can increase or decrease the interest rate, and you'll know about that upfront.
Who chooses an ARM? People who need a larger loan amount but want to keep early payments lower, those who plan to refinance or sell their house and pay off the loan before the initial period ends, and those who expect their future budget will be able to cover a higher payment.
Let's review.
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A padlock with a dollar sign represents the fixed rate loan.
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A fixed-rate loan puts the emphasis on stability, and allows you to lock in a rate.
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A meter with tick marks and an arm represents the ARM loan.
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An ARM focuses on flexibility. What matters most is what's right for you, your lifestyle, and your finances. When you're ready, be sure to ask your lender about both so you can see what your options are.
Our members are the mission. For more information, visit makingcents.navyfederal.org. Equal housing lender. This video is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation. NFCU, copyright 2020. Federally insured by NCUA.
