Fixed-Rate Mortgages:
Pros:
- Predictable monthly payments throughout the loan term.
- Protection against rising interest rates.
- Easier budgeting and planning for the long term.
- A popular choice for those who plan to stay in their homes for a long time.
Cons:
- Initially higher interest rates compared to ARMs.
- Limited flexibility, as refinancing may be necessary to take advantage of lower rates.
- Higher total interest payments over the life of the loan compared to ARMs if interest rates decrease.
Adjustable-Rate Mortgages (ARMs):
Pros:
- Lower initial interest rates compared to fixed-rate mortgages.
- Potential for lower monthly payments during the initial fixed period.
- Opportunity to benefit from falling interest rates without refinancing.
Cons:
- Monthly payments can increase significantly when interest rates rise.
- Uncertainty about future payments makes budgeting more challenging.
- Risk of payment shock after the initial fixed period ends.
- Less popular among borrowers who prefer stability and predictability in their mortgage payments.