If you’re considering buying a home or refinancing in Arizona, one key decision is whether to choose a fixed-rate mortgage (FRM) or an adjustable-rate mortgage (ARM). Both options have their benefits and risks. As of May 2024 ARMs accounted for 15.5% of single-family mortgages, the share of ARMs varied between 8%-18%. Which option is right for you? Let’s break down the differences to help you make an informed decision.

Understanding Fixed-Rate Mortgages (FRM)

A fixed-rate mortgage offers predictability. Your interest rate stays the same for the life of the loan, whether it’s a 15-year or 30-year term. This means your monthly principal and interest payments remain consistent, allowing for easier budgeting. However, keep in mind that while your loan payment doesn’t change, your overall mortgage payment could fluctuate due to changes in property taxes or insurance premiums.

Benefits of a Fixed-Rate Mortgage:

• Stability: Your payments remain the same throughout the loan term.

• Predictability: No surprises from fluctuating interest rates.

• Great for long-term homeowners: Ideal if you plan to stay in your home for many years.

How Adjustable-Rate Mortgages (ARM) Work

An adjustable-rate mortgage typically starts with a lower interest rate than a fixed-rate loan. However, after an initial fixed period (usually 3, 5, 7, or 10 years), the rate adjusts periodically based on a financial index, such as the Secured Overnight Financing Rate (SOFR). The adjustments can either increase or decrease your payment depending on the market.

Benefits of an Adjustable-Rate Mortgage:

• Lower initial interest rate: Often more affordable in the early years.

• Potential for lower payments if rates fall: Depending on market conditions, your rate could adjust downward.

• Ideal for short-term homeowners: Best suited if you plan to move or refinance before the adjustment period.

Key Differences Between Fixed-Rate and Adjustable-Rate Mortgages

1. Interest Rate Stability:

   • Fixed-Rate: Your interest rate is locked in for the life of the loan, providing consistent payments.

   • ARM: The initial rate is lower but can fluctuate after the introductory period.

2. Affordability Over Time:

   • Fixed-Rate: You avoid the risk of payment increases, but you might miss out on potential rate drops.

   • ARM: You start with lower payments, but the risk of rising interest rates could lead to higher payments later.

3. Down Payment Requirements:

   • Fixed-Rate: Some conventional loans offer as low as 3% down.

   • ARM: Typically requires a higher down payment, often 5%.

Is a Fixed or Adjustable-Rate Mortgage Right for You?

There’s no one-size-fits-all answer, but here’s a quick guide to help you decide:

• Choose a Fixed-Rate Mortgage if:

  • You plan to stay in your home long-term.

  • You prefer stability and predictable payments.

  • You’re a first-time homebuyer who wants a straightforward loan option.

• Choose an Adjustable-Rate Mortgage if:

  • You plan to sell or refinance before the end of the introductory rate period.

  • You want lower initial payments.

  • You expect your income to increase in the coming years.

Take Action Today

Understanding the differences between fixed-rate and adjustable-rate mortgages can help you make a more informed decision about your home financing. At Gervais Mortgage, we’re here to help you navigate your options and find the best mortgage for your unique situation. Whether you're a first-time homebuyer or looking to refinance, our team is ready to assist.

Learn more about your mortgage options and to schedule a consultation. Let’s secure the financing that works best for you!