AP Photo/Elise Amendola, File
- More than 60% of American homeowners have a mortgage.
- The two most common types of home loans are fixed-rate and adjustable-rate mortgages.
- With a fixed-rate mortgage, the homeowner's monthly payments are predetermined. With an adjustable-rate mortgage, monthly payments may change throughout the life of the loan based on interest rates.
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If you're planning on becoming a homeowner one day, you'll likely take out a mortgage to finance your purchase.
More than 60% of American homeowners have a mortgage, but finding a lender and getting approved is often the most complicated and time-consuming part of the homebuying process.
The two most common types of home loans are fixed-rate mortgages and adjustable-rate mortgages.
With a fixed-rate mortgage, your interest rate and monthly payments remain the same for the life of the loan, either 15 or 30 years. With an adjustable-rate mortgage, rates and monthly payments remain the same for a set period of time, then change annually thereafter.
For a long time, there were a lot of factors to consider when choosing between the two types of loans. First, you could get a lower rate on an ARM during the intro rate period than you would on a fixed-rate loan. This made an ARM a great option if you planned to move after just a few years.
Second, locking in your rate with a fixed-rate mortgage meant you risked missing out on lower rates later if US rates decreased — but you'd also risk an increasing rate with an adjustable-rate loan.
But fixed-rate mortgages are the better deal right now. Many 30-year fixed rates are comparable to or lower than ARM rates these days. And because rates are at historic lows, it's likely your rate would increase at some point with an ARM. Keeping a super low rate with a fixed-rate loan could set you up for financial success.
If you're considering an ARM, then you should still ask your lender about what your individual rates would be if you chose a fixed-rate versus adjustable-rate mortgage.
See what kind of mortgage rates you could get with this calculator from our partners:
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