A fixed-rate mortgage is a mortgage loan where the monthly principal and interest payments remain the same throughout the life of the loan. The most common mortgage terms are 30 and 15 years. A 30-year fixed-rate mortgage has lower monthly payments but a higher interest rate. With a 15-year loan, you can repay your loan in half the time and save more than half of the total interest costs.

Fixed-rate mortgages are beneficial if your income is not rapidly rising and you want your monthly principal and interest payments to stay the same. However, fixed-rate loans typically have higher interest rates than adjustable rate mortgages.

An adjustable rate mortgage, commonly referred to as an ARM, is a loan type that allows the lender to adjust the interest rate during the term of the loan. A lower interest rate initially means a lower monthly payment, making this a good choice for borrowers who are comfortable with their ability to handle the payment increases. The trade-off is that the interest portion of your monthly payment can increase over time.

The terms of an adjustable rate mortgage are found right in the name of the loan. There are 3/1 ARMS, 5/1 ARMs, 5/5 ARMs and even 10/1 ARMs. The first number in the name indicates the initial fixed period of the loan. The second number indicates the frequency of adjustments after the initial fixed period. For example, the 3/1 ARM will be fixed for the first 3 years and then adjust annually for the remainder of the loan. Whereas a 5/5 ARM is fixed for the first 5 years and then only adjusts once every 5 years for the life of the loan.

Also, interest rate adjustments are limited by periodic and lifetime adjustment caps that are specific to each type of adjustable rate mortgage.

Talk to a Verity representative to find out which option is best for you or visit veritycu.com/mortgage.

 

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Kira Cox

Hi, I’m Kira. I joined Verity in early 2012 after a seven-year stint as a newspaper reporter. While I never thought my career path would veer off in this direction, I am loving my time at Verity. I recently moved from being a member services representative at the Alderwood Branch to being the marketing coordinator for the credit union.

I’m originally from Texas, but I have lived all over the country and the world, including Boston, Massachusetts, Anchorage, Alaska and Sydney, Australia. But in all my travels, the Pacific Northwest is the only place that has felt like home.

When not at work, I am usually home with playing with my son, husband, dog and three cats. During the rare times I don’t have a to-do list to plow through (and it’s not raining too hard), I can be found digging in the vegetable garden, training for a half-marathon, or grilling in the backyard.

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