When discussing loans, you may hear the term adjustable-rate or fixed-rate. That’s why it’s important to understand the distinction between the two loan types.
Just a note: The “rate” in both adjustable-rate and fixed-rate refers to the interest rate.
An adjustable-rate loan (also known as an adjustable mortgage loan or variable-rate mortgage) is a loan that has an interest rate that changes during the life of the loan. The rate increases or decreases based on the terms of your loan and an interest rate index, which is determined by your lender (NerdWallet.com).
An index rate is a published number or percentage, such as the average interest rate or yield on Treasury Bills, which is used to decide the amount an interest rate on an ARM will change. Some index rates tend to be higher than others, and some more volatile.
What is a fixed-rate loan?
A fixed-rate loan, on the other hand, has an interest rate that remains the same for the life of the loan. Your mortgage rate can still fluctuate, however, because your monthly mortgage payment consists of more than just your principal and interest.
How do I determine which is right for me?
If you’re ready to start the mortgage application process, make sure to contact a HUNT Mortgage Consultant. Our team of Mortgage Consultants is highly trained and can give you an idea of what loan program could work best for your financial situation.