Fixed Rate vs. ARM

So just what IS the difference between a fixed rate and an adjustable rate? When it comes to choosing the type of rate for your loan, it’s important to consider how the interest will be calculated over the life of the loan. Let’s take a look at the benefits:

For a fixed rate loan, the interest rate that you start with at the beginning of your loan remains the same until the very last payment of your loan. For example, if you start with a 3.25% interest rate, it will be a 3.25% interest rate until the date of maturity, or the very last day your loan is outstanding (usually in 30 years). If you plan on staying in your home for more than 5 years, this make sense for you and will be the more stable option. Even as the market changes over time, you'll enjoy a consistent payment each month.

For the adjustable rate loan (ARM), your interest rate will start out fixed, and then will change each year (usually after the first 3, 5, or 7 years of the loan). As an example, on a 5/1 ARM loan, in five years, your interest rate will shift depending on market conditions. Even though your interest rate will start out fixed, there's no guarantees how the market will move in the future. If you are planning on selling your home or moving in a short period of time (generally less than 5 years), this can be a great way to grab a lower interest rate in the short term.

There are many other option for both Fixed and ARM product, speak with your Metro loan officer for a deeper dive into the loan program that suits YOU best!

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