FIXED-RATE vs. ADJUSTABLE-RATE MORTGAGES (ARMs)
- Fixed-rate and adjustable-rate mortgages are two of the most popular loan types for buying a home or refinancing your mortgage (including cash-out refinances). Both options are available for conventional conforming loan amounts, jumbo (non-conforming) loan amounts, and FHA or VA programs.
- Your interest rate and monthly principal and interest (P&I) payments remain the same for the life of your loan.
- Available in a variety of loan term options.
- You may be able to add extra features such as a temporary buydown.
- Predictable monthly P&I payments allow you to budget more easily.
- Protection from rising interest rates for the life of the loan, no matter how high interest rates go.
- May be a good choice if you plan to stay in your home for a long time.
- The overall interest you pay is higher on a longer-term loan than on a shorter-term loan.
- On a shorter-term loan, the monthly P&I payment is typically higher than on a longer-term loan.
Adjustable-rate mortgage (ARM)
- Your interest rate and monthly principal and interest (P&I) payments remain the same for an initial period of 5, 7, or 10 years, then adjust annually.
- Loans available in a variety of longer terms.
- Includes an interest rate cap that sets a limit on how high your interest rate can go.
- Typically ARMs have a lower initial interest rate than on a fixed-rate mortgage.
- The interest rate cap limits the maximum amount your P&I payment may increase at each interest rate adjustment and over the life of the loan.
- May provide flexibility if you expect future income growth or if you plan to move or refinance within a few years.
- Monthly principal and interest payments may increase when the interest rate adjusts.
- Your monthly principal and interest payments may change every year after the initial fixed period is over.
SOME TYPES OF LOANS
This loan type provides 100% financing with no mortgage insurance. The home and the borrower’s income must meet program guidelines.
A mortgage loan that is not insured or guaranteed by the federal government. The maximum mortgage amount for a conventional conforming loan is $417,000.
The North Carolina Housing Finance Agency helps make home ownership affordable for first-time buyers by offering 30-year, fixed-rate FHA, VA, and conventional mortgages at interest rates that are below market rates to first-time home buyers.
A loan insured by the Federal Housing Administration. This product typically requires a 3.5% down payment and the Federal Housing Administration sets maximum mortgage limits by state and county.