When you’re buying a home for sale in Baltimore County or Howard County, you have plenty of mortgage options – and among them are the two main types: adjustable-rate mortgages, or ARMs, and fixed-rate mortgages. So what’s better? This guide explains both so you can make the right choice for your financial future.
ARMs vs. Fixed-Rate Mortgages: Which is Right for You?
First things first: You should consult with a financial professional before deciding which type of mortgage loan is right for you. This isn’t financial advice, but it does cover the basics of both adjustable-rate and fixed-rate mortgages so you have some foundational knowledge about each.
What is an Adjustable-Rate Mortgage?
An adjustable-rate mortgage, usually called an ARM, is a mortgage that starts with a fixed, pre-determined interest rate. Often, the initial interest rate is lower than what you’d get on a fixed-rate mortgage. However, the interest rate will change after a certain amount of time has passed. Usually, that initial rate lasts for 3, 5, 7 or 10 years; you can negotiate a deal with your lender that says how long your initial rate will last.
The interest rate after the initial period will be based on market indexes – that is, the interest rates available for new mortgages. If interest rates are high when yours adjusts, your interest rate will go up; if they’re low, it’ll go down. There’s no way to accurately predict whether rates will go up or down, so it’s a bit of a gamble.
Your monthly payments can go up or down each time your rate adjusts.
There’s often a prepayment penalty involved with ARMs, too. That means you aren’t allowed to pay off your loan, refinance or even sell your home without incurring hefty fees. (Usually, the prepayment penalty applies to a certain number of years. For example, yours may be for the first 15 years of a 30-year mortgage.)
What is a Fixed-Rate Mortgage?
A fixed-rate mortgage is just what it sounds like: a mortgage in which the interest rate stays the same over the loan’s entire lifespan. If you sign a contract today that says you pay 3.9 percent interest on your home, that’s what your interest will be 30 years from now when you make your last payment.
If interest rates drop in the future, you’re free to refinance your fixed-rate mortgage.
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What’s Better: Fixed-Rate or Adjustable-Rate?
There’s no one-size-fits-all answer for which type of mortgage loan is better between fixed-rate and adjustable-rate. It’s all about whether you’re willing to take on the risk of your payments going up, how long you plan to keep your home, and whether you’re able to possibly make increased payments on your home loan. Your best bet is to talk to a financial professional to get all the pros and cons for both options, weigh your tolerance for risk, and make a decision based on your current financial situation.
Are You Buying or Selling a Home in Baltimore County or Howard County?
If you’re ready to buy or sell a home in Baltimore County or Howard County, we can help. Check out these listings:
- Homes for sale in Baltimore County
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- Homes for sale in Ellicott City
- Homes for sale in Columbia
- Homes for sale in Catonsville
- Homes for sale in Owings Mills
- Homes for sale in Pikesville
If you’re thinking about selling your home, we can help you sell it quickly – and at the best possible price. You can:
- Find out how much your home is worth now
- Learn how we market your home to put it in front of all the right buyers
- Get a general overview of home-selling in Maryland
If you have specific questions, fill out the form below or call us at 443-955-1227 – we’re here to help you with any aspect of your real estate transaction.