Is It Better to Get a Fixed or Variable Mortgage Rate?

When selecting a mortgage, consumers are presented with two categories of mortgages: fixed rate mortgages and variable rate mortgages. Each offers different advantages and drawbacks, so you have to make sure you understand the terms to get the best deal.

Function

Fixed rate mortgages offer the security of a set interest rate for the term of the loan. Variable rate mortgages offer the benefit of lowering the interest rate when the market rates fall but the disadvantage of going up if market rates rise.

Features

Variable rate mortgages often offer a low introductory rate, which can allow a borrower to qualify for a higher mortgage amount than he otherwise would be able to afford. Fixed rate mortgages have no sudden rate changes but do not allow any flexibility.

Clarity

Fixed rate mortgages offer simpler terms that make it easier for borrowers to understand exactly what they are agreeing to when they sign the mortgage. Variable rate mortgages can have many confusing terms, such as the introductory period time, adjustment periods and interest rate caps, according to Bankrate.

References

• Federal Reserve: Consumer Handbook on Adjustable Rate Mortgages
• Bankrate: ARM vs. Fixed-Rate Mortgage