Which is better: fixed or adjustable?
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Loan payments over the years
Year
Fixed Monthly Payment ($)
Adjustable Monthly Payment ($)
0
0
0
1
1,559
977
2
1,559
1,046
3
1,559
1,116
4
1,559
1,186
5
1,559
1,256
6
1,559
1,326
7
1,559
1,361
The line graph, above, shows the point in the loan term where the amount of monthly payments for the ARM loan may equal or exceed the payments on the fixed-rate loan. This point is determined by two factors: your prediction for future interest rates and the criteria used to reset the ARM loan rate. The fixed rate loan payment is shown as a horizontal line.
Total cost at loan payoff or home sale
Loan Term (years)
Fixed Cost ($)
Adjustable Cost ($)
0
5,404
4,500
1
17,127
12,205
2
29,685
21,433
3
42,091
31,323
4
54,337
41,857
5
66,414
53,015
6
78,313
64,779
7
90,027
76,889
The line graph, above, shows the total costs for each loan over the loan term. Total costs include mortgage interest and closing costs.
If the rate on an ARM loan is lower over the loan term than the fixed rate, you will pay less interest than with the fixed-rate loan. If the rate on the ARM loan rises to a rate that is higher than the fixed rate, however, you may pay more in interest on the ARM loan.
Cost difference of loans
Loan Term (years)
Difference ($)
0
904
1
4,922
2
8,253
3
10,768
4
12,480
5
13,398
6
13,534
7
13,137
The line graph, above, shows the difference in total costs between the ARM and fixed-rate loans over the loan term. Total costs include mortgage interest and closing costs.