By Jami J. Rodgers
Entertainment Magazine Online Columnist
Adjustable Rate Mortgages versus Fixed Rate Mortgages
With a fixed rate mortgage, the interest rate stays the same during the life of the loan.
But with an adjustable rate mortgage (ARM) the interest rate can fluctuate, and may lead to a higher payment on your mortgage in the future.
An ARM is a mortgage in which the interest rate and monthly payment change over time to reflect current market conditions. The advantage of a fixed rate mortgage is that you have permanent protection against rising interest rates.
Converting to a Fixed Rate Mortgage
Converting between adjustable rate and fixed rate mortgage can be a viable financial strategy. While ARMs initially offer lower interest rates than fixed rate mortgages, periodic adjustments often increase the rates until they are higher than the rates available with a fixed rate mortgage.
If this is the case, switching to a fixed rate mortgage results in a lower interest rate, and eliminates the possibility of future interest rate hikes.
Save Money Over the Long Haul
By switching from an adjustable rate mortgage to a fixed rate mortgage, you may save money by reducing your interest rate. This, in turn, increases the rate that you build equity in your home.
Source: "Consumer Handbook on Adjustable Rate Mortgages (ARMs)" U.S. Federal Reserve Board
About the Author: Jami J. Rodgers works in acquisition management for the federal sector in Washington, D.C. Jami holds a B.S. in Spanish with a business option and an international studies minor from The Pennsylvania State University.
