Home Loans: ARM or Fixed?

rationale · Joined: 08 Jan 2008 Posts: 11

Lenders use a number of criteria to determine which loan that you qualify for: credit, income, debt-to-income ratio, etc. The thing is, once the lender tells you what types of loans you’re eligible to receive, you still need to know which type is best for you! It would take a near eternity to discuss all of the possible loan type combinations so here’s what you need to know to cut your loan options in half without having to toil over a single offer…

There are two main categories of loans—fixed rate and adjustable rate.

Adjustable rate mortgages, often referred to as “ARMs,” are very appealing to most buyers at first glance. That’s because ARMS offer extremely low interest rates. But, as the name suggests, the interest rate is adjustable. That means interest rates can dip or spike from month to month. Fixed rate mortgage loans, on the other hand, typically carry higher interest rates than ARMs but mortgage payments will be steady each month.

So now comes the question…

Which type of mortgage loan—fixed rate or ARM—is better? Well, that depends on your budget and your tolerance for risk. If you’re a risk taker who has a substantial savings to tap into if interest rates spike, then opting for an ARM might work for you. However, if you’re working with a tight budget and average savings, a fixed rate mortgage will likely be ideal.[/url]

TimtheMortgageGuy · Joined: 16 Jan 2008 Posts: 28 Location: Rosemount, MN

rationale wrote: Lenders use a number of criteria to determine which loan that you qualify for: credit, income, debt-to-income ratio, etc. The thing is, once the lender tells you what types of loans you’re eligible to receive, you still need to know which type is best for you! It would take a near eternity to discuss all of the possible loan type combinations so here’s what you need to know to cut your loan options in half without having to toil over a single offer…

There are two main categories of loans—fixed rate and adjustable rate.

Adjustable rate mortgages, often referred to as “ARMs,” are very appealing to most buyers at first glance. That’s because ARMS offer extremely low interest rates. But, as the name suggests, the interest rate is adjustable. That means interest rates can dip or spike from month to month. Fixed rate mortgage loans, on the other hand, typically carry higher interest rates than ARMs but mortgage payments will be steady each month.

So now comes the question…

Which type of mortgage loan—fixed rate or ARM—is better? Well, that depends on your budget and your tolerance for risk. If you’re a risk taker who has a substantial savings to tap into if interest rates spike, then opting for an ARM might work for you. However, if you’re working with a tight budget and average savings, a fixed rate mortgage will likely be ideal.[/url]

I don't know about 'extremely low' (ARM vs. fixed). :shock: For the last few years the ARM rates have not been all that much lower than the fixed (loans under $417k).

Steve Ching · Posted: Tue Aug 26, 2008 11:49 pm Post subject:

If you are comparing Fannie Mae arms to Fannie Mae fixed loans then yes, sometimes there isn't much of a difference in rates. The rate drop can be pretty significant though if you compare Fannie Mae fixed with investment group arms, especially on larger loan amounts.

jtrenton · Joined: 12 Sep 2008 Posts: 10

I would always go for a fixed rate.