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Adjustable-Rate Loans
With most adjustable-rate mortgages, the interest rate is fixed for a set period of time and then begins to adjust for the rest of the loan's term. In exchange for interest rate uncertainty, you have a lower rate and monthly principal and interest payment at the start, compared to a fixed-rate loan.
An adjustable-rate loan could suit you better than a fixed-rate loan if you expect to sell your new home within five years or if you're comfortable with some degree of uncertainty in your monthly payments. Because payments on adjustable-rate loans may go up over the years, you might want to opt for this choice if you expect to receive significant pay increases over the next several years or anticipate a decline in other expenses.
Many people who choose adjustable-rate mortgages also quality, for fixed-rate loans. However, the lower initial interest rate of adjustable-rate mortgages and the opportunity to take advantage of lower monthly principal and interest payments have made home ownership more accessible to more people.
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