Fixed Rate Mortgage and Variable Rate Mortgage: A Brief Overview
As with all loan products, both a fixed rate mortgage and an adjustable rate mortgage offer the opportunity to make your dream of home ownership a reality. But the right mortgage is different for everyone.
Here’s what you need to know about a fixed rate or variable rate mortgage.
Fixed rate mortgage
A fixed rate mortgage is exactly what it is: the interest rate on your home loan is fixed for a certain period of time. It may be 10, 15 or 30 years – but for the duration of this mortgage, this interest rate will not change.
With this fixed rate period, your monthly principal and interest payment will not change. However, your overall mortgage payment could change due to fluctuations in your homeowner’s insurance bill and property tax costs.
This appeals to many people because it gives them certainty. Although your mortgage payment may vary a bit, a fixed rate loan keeps the payment relatively stable.
Variable Rate Mortgage
An adjustable rate mortgage, also known as an ARM or adjustable rate mortgage, has two components. The first is the fixed component, which means that the interest rate remains stable during a fixed rate period. It can be as short as 6 months or as long as 10 years. However, they all begin to adapt after this set period. They adjust up and down with the market.
At Quicken Loans®, whether you choose the 5, 7 or 10 year ARM, you’ll get the lowest rate we offer and save thousands of dollars over a traditional fixed rate mortgage during the initial fixed rate period. But after this initial interest rate period, the rate may change depending on the terms and your documentation. This can be done in 6 month or 1 year intervals, depending on the loan.