The Fixed vs. Adjustable calculator will help you determine whether you should choose an fixed rate loan or an adjustable rate loan. The interest rate for a fixed rate loan stays the same for the life of the loan. But with an adjustable rate mortgage (ARM), the interest rate fluctuates periodically based on an index like the U.S. Treasury Security Yields (1 Year T Bill), the Cost of Funds Index (COFI) and the London Inter-Bank Offer Rate (LIBOR).
ARMs are attractive to home buyers because they generally offer a lower initial interest rate than a fixed rate mortgage, saving you more money up front. They also can save you more in the long term, provided interest rates remain stable or decrease. And often, home buyers choose an ARM because they can qualify for a larger loan amount. But for all these benefits there is a tradeoff – the risk of rates going up. When comparing fixed versus adjustable, it is important to look at the index against which your interest rate will be measured, as well as the historical and predicted growth or decrease of that index. Margins are also an important factor, especially when comparing loans between lenders
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