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Federal Deposit
Insurance Corporation

Each depositor insured to at least $250,000 per insured bank

Fixed Rate and Adjustable Rate Mortgages

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Fixed-Rate Mortgage Adjustable-Rate Mortgage (ARM)
  • Interest rate stays the same for the term of the loan.
  • Your payments are predictable and not affected by interest rate changes in the market.
  • Interest rates could go down while you are locked into your mortgage at a higher-than-market rate.
  • Interest rate can increase or decrease during the term of the loan.
  • You might have a low rate for an initial period of 1, 3, 5, 7, or 10 years.
  • Monthly payments may initially be lower than fixed-rate loans.
  • The interest rate and your payment can increase significantly throughout the term of the loan.
  • If interest rates rise, do not count on being able to refinance into a lower rate fixed-rate loan, as your financial situation could change (e.g., due to a job loss)—and still, refinancing to a rate lower than the going rate may not be possible.

Interest Rate v. Annual Percentage Rate (APR)

The interest rate does not factor in any of the non-interest closing costs. Compare loan offers using the Annual Percentage Rate (APR). Think of the APR as a “fully loaded price tag.” In other words, it combines the cost of both the interest and some–-but not all–-of the non-interest closing costs, and then calculates that combined cost as a yearly rate.

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