Rebecca Safier at USA Today wrote an explainer on fixed-rate mortgages, the loan 92% of homebuyers choose, and asked me when the fixed rate makes sense and when it does not.
My answer started with what the product is actually for. Fixed-rate mortgages win on one thing above everything else: predictability. Your principal and interest payment is the same in month one as it is in month 300. That certainty is what lets a household plan around a mortgage for 15, 20 or 30 years, and it is why most buyers take it without thinking twice.
But I also made the case for the alternative in the right situation. With ARMs, the initial rate is almost always lower, sometimes by a full percentage point or more. For a short-term hold, under seven years, that is real money. If you know you will sell or refinance before the adjustment period, paying a premium for 30 years of certainty you will never use is a cost, not a benefit.
One nuance the article covers well: even a fixed loan does not mean a fixed housing payment. Taxes and insurance inside the PITI payment still move, and in a lot of markets they are moving up faster than people expect.
Read the full article at USA Today →
