The Difference Between Fixed-Rate & Adjustable-Rate Mortgages

Fixed-rate mortgages and adjustable-rate mortgages are both considered types of conventional mortgages. Unlike VA, USDA, and FHA mortgages, conventional mortgages are not guaranteed by a government entity. As implied by their names, fixed-rate mortgages and adjustable-rate mortgages have one key differentiating factor – the structure of the interest rate. However, there are multiple considerations for each mortgage type depending on your individual financial situation.

Fixed-Rate Mortgages

Fixed-rate mortgages are exactly as they sound, a mortgage with a fixed-rate that does not change throughout the life of the loan. This permanent rate structure allows for predictable payments so you always know what to budget for. UICCU offers fixed-rate mortgages in 30, 25, 20, 15, and 10 year term lengths. To put this in perspective, if you choose a 30 year fixed-rate mortgage and interest rates double five years later, you are not affected by this increase and will still keep the interest rate you had when you originally acquired the loan.

Adjustable-Rate Mortgages

Adjustable-rate mortgages start with a fixed-rate for the initial term, then change to an adjustable-rate. Adjustable-rate means your payment may go up or down each year depending on federal rates. The initial term is determined at loan origination. UICCU offers 3/1, 5/1, and 7/1 terms. The first number in this fraction is the initial term length and the second number signifies how often the rate changes after the initial term. For example, a 3/1 adjustable-rate mortgage means you will have a fixed rate for the first 3 years of the mortgage, then the rate will adjust once per year for every year following.

Making a Decision

Trying to decide which option is best for you? Our mortgage team will help you secure the right rate and term for your situation and answer any questions you have. Contact our mortgage team today at mortgage@uoficreditunion.org or 217-278-7700.

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