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Fixed vs. Adjustable Rate Mortgage: Which is Best For You?

Mar 14, 2024
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Owning a home is the hallmark of the “American dream” and one of the biggest investments of your life. But deciding which mortgage is best for you isn’t something to jump into blindly. Before you choose just any home loan, be sure to compare your options first so you can make the best decision for your future.

The Difference Between a Conventional 30 Year Fixed and 10/10 Adjustable Rate Mortgage

Buying a home isn’t the same as it was seventy years ago, which is why matching the right mortgage to your lifestyle is key. Gaining a deeper understanding by exploring these two types of home loans will help you make an informed decision that’s best for your financial future. 

Understanding 30 Year Fixed Rate Mortgages

As the name suggests, this mortgage allows you to pay for your home over a 30 year period and carries a fixed rate throughout the entire loan. It’s an amortized loan, which simply put means your loan is broken into equal monthly payments with a portion applied to the principle and the other towards interest.  

Advantages of a 30 Year Fixed Mortgage

  • Offers predictable monthly payments.
  • Rates remain constant over the life of the loan.
  • Attractive when rates are low.

Disadvantages of a 30 Year Fixed Mortgage

  • Rate tends to be higher in high-rate conditions.
  • Typically requires a larger down payment.
  • May require private mortgage insurance (PMI). 

Is a 30 Year Conventional Mortgage Right for You?

A conventional 30 year fixed rate mortgage is the most common type of home loan. It’s best for those who are ready to settle down in one location for a long period of time. If you have the means to put down at least 20%, you may be able to opt-out of holding private mortgage insurance, which would lower your monthly payment. A 30 year fixed mortgage loan offers the benefit of steady monthly payments that allow for predictable budgeting, especially when rates are low.

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Understanding 10/10 Adjustable Rate Mortgages (ARMs)

A 10/10 adjustable-rate mortgage (also known as a variable rate mortgage) is a home loan with an interest rate that adjusts every ten years. It offers a fixed rate for the first ten years of the loan, then the rate changes every ten years based on market conditions. 

Advantages of a 10/10 Adjustable Rate Mortgage

  • Offers low down payment.
  • No private mortgage insurance (PMI)
  • Greater purchasing power in high rate environments.

Disadvantages of a 10/10 Adjustable Rate Mortgage

  • Possibility of monthly payment increasing.
  • Rate may increase depending on market conditions.
  • More difficult to budget for.

Is a 10/10 Adjustable Rate Mortgage Right for You? 

If you’re planning to move or sell the home after a few years, a 10/10 ARM may be a good fit for you. This home loan offers more purchasing power during high rate environments because the initial rate is usually lower than that of a conventional mortgage. This may translate to an initial lower monthly payment, offering homeowners additional saving opportunities. Just keep in mind that there is the chance that the interest rate may increase or decrease depending on market conditions.

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Crunch the Numbers and Get an Idea of What You Can Afford

If you’d like to explore monthly payments to get an idea of what’ll fit best in your budget, give our mortgage calculator tool a try. You can try different rates and terms to see what your estimated monthly payment would look like.

You can take your research even further by downloading our “How Much House Can I Afford” eBook, which gives you access to tools and tips for finding your maximum house hunting budget.

Peach State Can Pair You with the Right Mortgage

When it comes to choosing the best home loan to fit your needs and lifestyle, it’s best to work with a lending professional like one of our Mortgage Specialists. Our Mortgage team will listen to your needs and goals to find the best mortgage option for your future investment. We’ll answer any questions you have and walk you through every step of the application process. 

At Peach State, we understand what it takes to turn homeownership into a reality, and we’d love to help make your dreams come true. We'd love to help you get pre-approved today!

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