The world of mortgages is a puzzle that can seem completely unsolvable at times! In particular, many new and experienced buyers find themselves at a loss when trying to choose between the different mortgage types that are available. 

Fixed-rate and adjustable-rate mortgages are two types of mortgage that home buyers are faced with. Each mortgage type comes with it’s own pros and cons, making it sometimes too difficult to reach a decision.

If you’re currently on the fence about which mortgage to choose, we’re here to help! In this article, we will delve into the depths of each mortgage type and discuss what type of home buyer is best suited to each one. 

What is a fixed-rate mortgage?

A fixed-rate mortgage is a type of loan that has a fixed interest rate. This means that the interest that you pay on the loan will not change outside of your agreed contract. The interest rate will remain the same all the way through your mortgage despite rates of inflation. 

Fixed-rate mortgages are popular with customers who don’t want to risk increasing interest rates. Unlike other mortgage types, fixed-rate mortgages are not affected by inflation and provide you with a guaranteed rate for the entirety of your loan.

While the interest rate of a fixed-rate mortgage will not go up, it also won’t fall down. In some cases, this can mean that you may miss out on competitive interest rates when mortgage lenders can afford to charge less on their loans.

The interest offered by fixed-rate mortgage loans will vary from lender to lender. Therefore, it is worth shopping around to find the best deal! SoFi home loans offers an excellent range of mortgages that can be tailored to your needs.

What is an adjustable-rate mortgage?

On the opposite side of the scale to fixed-rate mortgages are adjustable-rate mortgages. These mortgages have an interest rate that can fluctuate with the wider market. This means that the interest rate may change from the beginning to the end of your mortgage term.

The main advantage of an adjustable-rate mortgage is that interest rates can decrease if the market conditions allow it. This means that homeowners may be able to take advantage of lower rates than those who are on fixed-rate mortgages.

However, adjustable-rate mortgages can also increase in price over time. Mortgage terms tend to last for considerable time periods which means that the exact interest-rate movement can never be determined. When you opt in for an adjustable-rate mortgage, the amount that you pay back will be dependent on market conditions.

Some adjustable-rate mortgages have a cap on how high or low the interest rate can go. It is always worth checking this before you make your decision as this could offer some level of protection against price fluctuation. 

Fixed-rate vs adjustable-rate: What are the differences?

The main difference between the two types of mortgage is how the interest rate is affected by the wider market. With a fixed-rate mortgage, the interest that you pay each month will remain the same. On the other hand, adjustable-rate mortgages are susceptible to change.

You may notice that many adjustable-rate mortgages have a lower initial interest-rate than fixed -rate terms. This can make them appealing to buyers however, you should always consider possible increases that could occur.

Both types of mortgage require a good credit history from applicants. As well as this, both fixed-rate and adjustable-rate mortgages are a loan that must be repaid over time.

Which mortgage is right for you?

There are pros and cons to both types of mortgage. If you would like the safety of knowing exactly how much interest you will pay every month, a fixed-rate mortgage may be the best option for you. However, if you’re seeking lower interest rates and are prepared for fluctuations, an adjustable-rate mortgage could offer what you are looking for.