Readers: This is article 5 of 25 from my no-nonsense “Mortgage Basics” quick-reference series.
A fixed-rate mortgage is a home loan that uses the property being purchased as collateral. However, unlike an ARM where the interest rate is subject to change on a periodic basis, the interest rate on a fixed-rate rate mortgage remains the same over the life of the loan. As a result, fixed-rate mortgages are considered less risky than their ARM counterparts.
Typically, you should choose the security of a fixed-rate mortgage if any of the following are true:
- You expect interest rates to increase in the future
- You believe that you may be unable to refinance your mortgage later on
- You don’t expect your future income to rise appreciably
- You’re risk averse
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