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What Is The Difference Between Fixed-Rate Loan And Adjustable-Rate Mortgage?

The most popular type of conventional loan, the fixed-rate loan, is one interest rate and a each month's payment for the duration of the loan. This typically is between 15 and 30 years. A type of fixed-rate mortgage is the Jumbo loan.

Homeowners who want certainty and don't plan to change in the near future may be the best candidates for this type of loan. Know more about home purchase loans through online sources.

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Fixed-rate loans require an initial down payment. The change in rates of interest won't affect the conditions of your mortgage, therefore you'll know exactly what to expect from the monthly payments. 

A fixed-rate mortgage is the best option for those who plan to remain in their house for at the very least a significant portion of the term of the loan. However, if you believe that you'll be moving quickly, you may be interested in the other option.

 Adjustable-rate mortgage

Contrary to fixed-rate loans, adjustable-rate mortgages (ARM) provide mortgage interest rates generally lower than those you'd receive when you take out a fixed-rate mortgage for a specified time, like 5 or 10 years instead of the term of the loan. 

After that, however, your interest rates (and your monthly payments) will change, usually every year, in line with the current interest rates. If interest rates go up, so will your monthly payments. If they drop, you'll be paying less in mortgage installments.

Ideal is for home buyers who have less credit score are best to take advantage of an adjustable rate mortgage. Because people with low credit scores generally don't qualify for favorable rates on fixed rate loans, an adjustable rate mortgage can help bring the rates to make homeownership more attainable.