The Difference between an ARM and a Fixed-Rate Mortgage

The most common type of mortgage is the fixed-rate mortgage (FRM). This kind of mortgage gives you a set amount of money to borrow over the life of the loan, and it doesn’t change even if interest rates do.

However, there are other kinds of mortgages that are available through lenders such as banks or government-sponsored enterprises (GSEs). These include Adjustable-Rate Mortgages (ARMs) and Interest Only Mortgages (IONs). Each of these can be an option for someone looking for a home loan—but they each have different pros and cons. In this article, we’ll explore how ARMs work, how FRMs work, what difference there is between them; and why some people might prefer one over another depending on their own situation at any given time in their lives.

Understanding how an ARM works

ARMs are adjustable-rate mortgages. They’re the same as FHA-backed loans, except that they have an interest rate that changes periodically, usually every 6 months or 1 year. This means that if you choose to make extra payments on your ARM loan during the first month of each billing cycle, those extra payments will result in less principal being paid off at the end of each payment period—and thus lower monthly payments!

If you’re looking for a mortgage with lower monthly costs and more flexibility (such as being able to pay off more than your initial down payment), an ARM may be right for you.

How ARMs work

An ARM is an adjustable-rate mortgage. This means that your loan’s interest rate will change over time, based on certain factors such as the lender’s assessment of your creditworthiness and the U.S. Treasury Rate (the federal government’s benchmark for interest rates). For example:

  • If you have a high FICO score, then your ARM may start at a lower rate than if you didn’t have a good score; however, it will go up over time as inflation rises and prices go up—making it harder for homeowners with low incomes to pay off their debt payments each month (which could cause them to default). On the other hand, if someone has bad credit or no income at all they may be offered an ARM with higher initial monthly payments but lower annual percentage rates later on down payment.

An ARM is often a good option for those with less-than-perfect credit, or those who don’t plan to stay in the home long term.

An ARM is often a good option for those with less-than-perfect credit or those who don’t plan to stay in the home long-term.

If you’re looking for an opportunity to get into the market and build up your credit history, an ARM may not be best for you. For example, if your current lender holds out on approving new loans because they think it’s too soon (or even because they think it’s impossible) then they’ll likely deny any applications based on this information alone. And while this could mean that there are no other lenders currently willing to approve loans with such poor scores as yours at this point in time—and therefore no other options available—it also means that there’s no way yet to know how much money will need replacing when everything goes wrong later down the line!

Fixed-rate mortgages (FRMs)

Fixed-rate mortgages (FRMs) are the most common type of mortgage. They’re generally good for people who plan to stay in their homes for a long time, or who want to lock in a low rate for the life of the loan.

The main benefit of an FRM is that it’s fixed, which means you don’t have to worry about changing interest rates during your term. This can help keep your payments lower over time, especially if you’re paying off the principal faster than expected. However, there are disadvantages as well: because they’re locked into one payment amount each month, FRMs also tend not to offer much flexibility in terms of what happens if interest rates rise or fall unexpectedly during your term—which could happen if housing prices drop sharply over time due to rising unemployment levels or other factors beyond anyone’s control

Understanding how FRMs work

  • A fixed-rate mortgage is a type of mortgage that sets the interest rate for the entire term of your loan. This means that you’ll pay the same amount each month, regardless of what happens in your financial life.
  • The best thing about FRMs is that they’re easy to understand and don’t require too much paperwork—which makes them ideal for first-time buyers who want something stable without too many strings attached. However, there are some drawbacks: For one thing, if you’ve been unable to get approved because of poor credit scores (or any other reasons), then it’s likely going to be harder than usual for you to qualify since most lenders won’t want their money tied up in risky borrowers who can’t make payments on time when they need them most!

Different kinds of mortgages work better for different people and different financial situations.

The best mortgage for you depends on your personal finances and financial situation. Here are some things to consider:

  • Do you want to worry about the interest rate changing? If so, a fixed-rate mortgage might be right for you.
  • Are there any other factors that could affect your ability to pay off your loan in full? For example, if you’re planning on leaving town soon or retiring early, it can be wise to lock in a low-interest rate now while the market is still relatively stable (and before rates climb).
  • Are there other reasons why this type of loan might not work well with yours—such as low income or less-than-perfect credit scores—that would make it difficult for them anyway


Overall, we think it’s important to know the difference between ARM and FRM mortgages. They’re both fairly common options for homebuyers, but there are some key differences that will help you decide which might be best for your needs. If you’re thinking about getting into the housing market and signing up with either one of these companies, it’s a good idea to do some research on both kinds of loans before deciding on which one will work best for you!

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