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.
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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.