When looking to refinance, there are two options—a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Both types of mortgages may be able to help lower your monthly payments, but you should be aware of their differences before deciding.
A fixed-rate mortgage is a mortgage loan where the interest rate remains the same throughout the term of the loan. In general, people tend to prefer fixed-rate mortgages when interest rates are relatively low. However, if the rate falls even lower, they are still locked into the rate even though it’s higher than current market rates.
An ARM, or variable-rate mortgage, is a mortgage loan where the interest rate is periodically adjusted based on an index that reflects standard market rates and trends; the loan may be offered at the lender’s standard variable/base rate. If you have plans to sell your property within a few years, an ARM may be the best way to refinance. The initial rate that you will be offered for an adjustable-rate mortgage is usually lower than the rate on a traditional 15 or 30-year mortgage meaning you would lock in the lower rate and likely sell before they start to rise again. Whether you decide to go forward with a fixed-rate or adjustable-rate mortgage, do your research and stay up-to-date on current market rate trends in order to get the best deal for your needs.