Fixed Versus Adjustable

Real Estate Broker/Owner with Tina Fountain, REALTORS

Although today's homebuyer has more financing options than have ever been available before, typically the two most popular loan types are fixed rate, and adjustable rate loans.

Fixed-rate mortgages are the preferred loan type for most buyers today as it carries the same interest rate for the life of the loan. Traditionally, fixed-rate mortgages have been the most popular choice among homeowners, because the fixed monthly payment is easy to plan and budget for, and can help protect against inflation. Fixed-rate mortgages are most common in 30-year and 15-year terms, but recently more lenders have begun offering 20-year and 40-year loans.

Adjustable-rate mortgages (ARM) differ from fixed-rate mortgages in that the interest rate and monthly payment can change over the life of the loan. This is because the interest rate for an ARM is tied to an index (such as Treasury Securities) that may rise or fall over time. In order to protect against dramatic increases in the rate, ARM loans usually have caps that limit the rate from rising above a certain amount between adjustments (i.e. no more than 2 percent a year), as well as a ceiling on how much the rate can go up during the life of the loan (i.e. no more than 6 percent). With these protections and low introductory rates, ARM loans have become the most widely accepted alternative to fixed-rate mortgages.

Tina Fountain Realtors, an Atlanta Real Estate company serving the entire metro Atlanta area including Marietta Real Estate and Cobb County Real Estate


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Constantine Isslamow
Century 21 United Realty Inc. - Peterborough, ON
"Training and Accountability"

Thank you for posting and sharing your very informative article.

Wishing you continued success.

Apr 18, 2010 02:50 AM #1
David Saks
Memphis, TN

An adjustable rate mortgage is a problematic situation that will eventually become dangerous if not addressed, and the last act of a desperate buyer. There should be no other choice than a fixed rate loan in today's economy or the buyer should wait until their credit and downpayment resources can qualify them for a conventional or FHA fixed rate loan. All of the 'creative' loan products available over the last 10 years slammed the banks into the dirt because of the defaults on ARMs. Most ARMs were processed for low income buyers who never would have been able to understand the complexities, and the mathematics, involved in those kind of financial arrangements. Tragically, some ARM's were designed to fail.

Apr 18, 2010 03:08 AM #2
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