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Fixed Rate Loans

Fixed rate loans have a fixed interest rate and payment for the life of the loan. The most popular fixed rate mortgage is one with a 30 year repayment period. This provides the borrower with a more affordable monthly payment because the repayment period is longer. The shorter the loan term, the more the monthly payment will be each month.

Terms available: 30 Yr, 25 Yr, 20 Yr, 15 Yr, and 10 Yr

Pros

Payment will never change and is predictable for the life of loan.

Interest rate is guaranteed for the life of loan

No risk of interest rates going up.

Cons

Interest rate is higher than an ARM loan.

ARM Loans

ARM loans have a fixed interest rate for an initial period and then adjust yearly after the initial lock period has expired. A 7/1 ARM would have a fixed rate for 7 years and then adjust annually, while a 5/1 ARM would have a fixed rate for 5 years and then adjust annually. All ARM loans have a 30 year repayment period. ARM loans are a good option if you know that you will only be in a house for a certain number of years.

Pros

Interest rates are usually lower than a fixed rate loan.

Option of how long to have the rate fixed. The shorter the period, the lower the initial rate.

Cons

Interest rate may go up in future.

No certainty about what payment will be after the fixed period is over.