Purchasing your first home is one of life's biggest accomplishments. Yet, the process, for some, can become confusing when you lack understanding of the mortgage options available to you. Although there are several mortgage types, in this case, we are referring specifically to the two most common types: adjustable-rate mortgages (ARMs) and fixed-rate loans. To alleviate this confusion, we encourage prospective home buyers to take steps to understand what each mortgage type entails as early on in the home-buying process as possible. In this way, you can make an informed decision about what option is best for you based on your needs, financial situation, and eligibility.
As one of the top banks serving Faith, NC, and surrounding areas, F&M Bank is committed to educating and supporting potential homeowners in a way that helps them to be well-informed and confident in their homeownership journey. Whether you’re a first-time home purchaser or you are refinancing, this article will serve to help you thoroughly understand which mortgage option is right for you.
Here Are the Basics
What Is an ARM?
An ARM, shortened for adjustable-rate mortgage, has an initial period where borrowers can enjoy a fixed, lower interest rate. After that period ends, the rate adjusts periodically based on market conditions. ARMs have these key features:
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Initial Fixed Period: A period (e.g. 5, 7, or 10 years) where the rate doesn’t change.
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Adjustments: Rate adjusts annually or semi-annually after the fixed period.
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Index and Margin: Rate is calculated based on an index plus a lender’s margin.
ARMs are popular with homeowners looking for short-term savings on their monthly payment.
What Is a Fixed Rate?
A fixed-rate mortgage has the same interest rate for the life of the loan, so your monthly payment is predictable. Homebuyers who value stability and long-term planning like fixed-rate loans especially when rates are low.
When an ARM Might Be the Way to Go
If you’re getting a mortgage in Salisbury, NC, here are some things to consider in order to determine if an ARM might be the better choice:
1. If You’ll Move or Refinance in a Few Years
If you know you’ll move, sell your home or refinance before the ARM’s fixed period ends, you can take advantage of the lower initial rate. This saves you money compared to a fixed rate.
For example, a 7/1 ARM has a fixed rate for the first 7 years. If you move or refinance during this time, you’ll avoid the risk of rate adjustments and get lower payments.
2. When Rates Are Expected to Go Down
In a market where rates are expected to drop, an ARM can help you take advantage of those changes. Fixed-rate mortgages lock you in at the current rate; ARMs let you benefit if rates drop in the future.
3. If You Want Lower Payments
ARMs have significantly lower initial rates than fixed-rate mortgages. So homeownership is more affordable in the short term, especially if you have other priorities like renovations or growing your family.
Fixed-Rate Mortgages: When They Make Sense
While ARMs offer flexibility, there are times when a fixed rate makes more sense:
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You’re a long-term homebuyer looking for stable payments.
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Rates are low, and you should lock them in for the long term.
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You don’t want to risk rate increases.
For those who will be in their home for many years a fixed-rate mortgage gives you peace of mind and financial stability.
Before You Choose an ARM
When choosing the right mortgage, consider these:
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Financial Goals: Will you move, refinance, or stay long term?
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Rate Trends: Will rates go up or down soon?
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Loan Terms: Review adjustment caps, margins, and the fixed period.
As the top bank in Salisbury, NC, F&M Bank can help you weigh those factors.
How F&M Bank Can Help with Mortgage Services in NC
Choosing between an ARM and a fixed-rate mortgage depends on your financial goals, how long you plan to stay in your home, and what interest rates are doing. At F&M Bank, our mortgage lenders in Salisbury and across North Carolina take the time to explain your options clearly so you can make a confident decision.
Call or visit your local F&M Bank office today to learn more about ARMs and fixed-rate mortgages. We’re here to help you find the financing solution that fits your life.