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- fixed vs arm
As its name implies, a fixed rate mortgage offers a fixed interest rate for the life of the mortgage and your monthly payments remain the same. Adjustable rate mortgages (ARMs) offers a rate that is tied to a market index. 1
- You generally start out with an interest rate lower than a fixed rate loan. This saves you money early on, and may help you qualify for a more expensive home.
- However, your payments can go up considerably when interest rates are rising.
- As the index goes up or down, your payments will also change at each scheduled adjustment date.
- There are "rate caps" to limit the amount your interest rate can go up or down.
Which is right for you?
An important question to ask yourself is "How long do I plan to own this house?"
- Planning to stay put. If you plan to be in your home for more than seven years, you may want to consider a fixed rate mortgage. A fixed rate mortgage will offer you predictable payments and long-term protection against rising mortgage interest rates. (You generally don't need protection against falling mortgage rates as you will typically have the option to refinance your mortgage at a lower rate should rates go down in the future.)
- Planning to sell. If you plan to be in your home for seven years or less, an adjustable rate mortgage could be an attractive option. Keep in mind that should you stay in your home longer than you originally planned, your monthly payments may go up when your interest rate is adjusted if mortgage interest rates are rising.
Keeping an eye on interest rates
Depending on current interest rate conditions, the differences in the monthly payment between a fixed rate loan and adjustable rate loan could be very small or quite large. Because of the many different variables involved, using an online calculator to determine which type of loan may be right for you can be a smart approach. In addition, your Chase loan officer can help you consider all of your options.
1. For the Adjustable Rate Mortgage (ARM) product, interest is fixed for a set period of time, and adjusts periodically thereafter. At the end of the fixed rate period the interest and payments may increase. The APR may increase after the loan consummation.
When you pay a discount point, you are essentially paying part of your interest to the lender up front.
