ARM VS. FIXED: Which is the Right Mortgage for You?

May 13, 2014

You may have seen the headlines: with low rates holding steady, adjustable rate mortgages are on the rise – and there are some compelling reasons for that. From rates well below their fixed counterparts to a favorable long-term outlook, ARMs boast benefits that make them an attractive option for qualified borrowers. Perhaps that’s why nearly 38% of loans in Q4 of 2013 fell into this category, according to statistics cited in the Wall Street Journal.

The question is: should you be next? That depends. On the one hand, an ARM can be a strong component of a long-term financial plan for savvy borrowers. Others may prefer the stability and simple planning that comes when one instead opts for a fixed loan. Read on to learn more about the benefits of fixed vs. adjustable mortgages.

Different Borrowers, Different Choices

When it comes time to decide which option is best for you, knowledge is power. As you begin to consider your options, here are some general things to consider.

Adjustable Rate Mortgages (ARMs)	Fixed Mortgages
Benefits: Low, locked-in rates can extend purchasing power The ability to divert savings to a higher-yield investment No need to refinance if rates fall Potentially significant savings over the life of the loan Increases capped to 2% per adjustment period	Benefits: Long-term, locked-in rates that are still near historic market lows No exposure to potential higher rate conditions Steady, predictable payments every month Easy math and simple loan terms
Best for: Financially savvy borrowers Downsizers borrowing lower amounts Those who plan to move or pay off their loan quickly Those who expect income increases Borrowers comfortable with an element of risk	Best for: Those who plan to stay in their home for a long time Borrowers on a fixed income Those who are especially risk-averse Homeowners who prefer to know what their payments will be for the life of the loan

Benefits:

Low, locked-in rates can extend purchasing power
The ability to divert savings to a higher-yield investment
No need to refinance if rates fall
Potentially significant savings over the life of the loan
Increases capped to 2% per adjustment period

Benefits:

Long-term, locked-in rates that are still near historic market lows
No exposure to potential higher rate conditions
Steady, predictable payments every month
Easy math and simple loan terms

Best for:

Financially savvy borrowers
Downsizers borrowing lower amounts
Those who plan to move or pay off their loan quickly
Those who expect income increases
Borrowers comfortable with an element of risk

Best for:

Those who plan to stay in their home for a long time
Borrowers on a fixed income
Those who are especially risk-averse
Homeowners who prefer to know what their payments will be for the life of the loan

Is an ARM right for you?

Choosing the right loan comes down to being honest about your goals, prospects and personality. With new lending rules in place as of January 2014, there’s also more to consider than ever before. The residential lending experts at Manasquan Savings Bank make it a point to review your mortgage options completely, so you have the information you need to land a mortgage you can afford – before you even apply.