# Fixed rate v. Adjustable



## altair (Jul 23, 2011)

After getting screwed on a refi when conventional rates were much lower, I was now looking at the lower rates of adjustables. My father said to always stick with fixed but didn't give much of a reason (other than at least getting the devil you know versus the one you don't).


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## painterswife (Jun 7, 2004)

Variable is very dangerous if they rise . You can easily lose the house if you can't refinance.


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## Danaus29 (Sep 12, 2005)

Right now our ARM rate is less than a fixed rate mortgage. We don't really have the option of refinancing now, banks don't want to lend that small an amount.

Hopefully we'll have it paid off before the rates go up.


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## Hiro (Feb 14, 2016)

Fixed, you always know the rate and payment. Variable is gambling that they won't go up. What is the percentage difference these days? It cannot be much. Back in a normal economy there was a wide variance. I cannot imagine that there is that much difference now and I have trouble believing they will go anywhere but one direction.


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## Danaus29 (Sep 12, 2005)

Right now my difference is 1.5%. To refi we have to pay another $1,000 in title work and closing costs.

The current mortgage started as a line of credit at prime plus something percent, maybe 1 or 1.5, I can't remember for sure. It would be paid off if we hadn't used it to buy more real estate.

In today's RE market it would be good to shop around and see what options are available. With costs rising and homes selling fast, you might be able to find a really great rate. If prime jumps up, home loan rates will go up fast too.


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## altair (Jul 23, 2011)

We currently pay 4.5% fixed and I haven't widely shopped around, just trying the more local banks and there's an ARM for 2.625%, it'll remain fixed for 5 years then be variable. But that's just one I found so far.


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## robin416 (Dec 29, 2019)

With the rates as low as they are right now I would stay away from an ARM. Yes, you'll have five years of a locked rate but when that five years is up chances are the rate will be quite a bit higher than the 2.6 you've seen. 

If they were higher with a chance of going down, then it might be worth a look.


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## Alice In TX/MO (May 10, 2002)

The economy is too unpredictable to gamble on an adjustable rate mortgage.


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## alida (Feb 8, 2015)

When I was in the process of getting my first mortgage, a good friend in the finance business told me to consider the "sleep at night factor". Can you live with the uncertainty of a variable rate or not. Simple. He was not my financial advisor so had no vested interest in my decision. I know myself - I needed to know what the payment would be so I went with a five year fixed. When I was first approved I got the discounted rate of 7.5%, down from 8.5%. By the time my condo closed a year later the rate had dropped to 5%, and I got the heady deal of 4.6%. I took it and slept at night knowing that it was a great rate for the time.

Five years later the rates were slightly less again, 4.3% and I locked in again. If I'd gone with variable I would have been ahead for sure, hindsight is perfect, and I would have had many sleepless nights. 

What I did do was figure out what my payment would have been at 7.5% and made extra payments against the principle with the difference. I finished the 25 year mortgage in 11 years.


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## doc- (Jun 26, 2015)

The rate is 1.5% now, so can't possibly improve by more than 1.5%-- but under the Carter Admin around 1980, they approached 20%--and they weren't printing money then like they do now. Five yrs from now, 20% may look good.


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## po boy (Jul 12, 2010)

I relocated in 1981 and was happy to find a 9.5 I could assume.
Now is the time to do a fixed rate.


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## Wolf mom (Mar 8, 2005)

With interest rates as low as they are now, I'd lock in a fixed rate.

If interest rates weren't this low, the difference between a fixed rate and variable actually needs a few questions answered before committing yourself:

How long are you planning on owning the property? If it's short term, a variable might prove to be more attractive. Something like a 5/1 arm means the initial rate is locked in for the first 5 years.
What is the cap? That's the highest that interest rate can go on your loan.
When and how is the rate adjusted? Yearly? Monthly?
What index is the rate tied to?

The answer to the OP's question is really not a this or that answer.


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## CKelly78z (Jul 16, 2017)

Back (years ago) when we were in the market for a mortgage, the ARM (adjustable rate mortgage) caps were 2/6, which means it could increase 2% per year, or 6% over the life of the loan. This means that your payment could effectively double, or triple in a short time frame. 

It's almost always better to get a fixed rate.


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## boatswain2PA (Feb 13, 2020)

There are rarely absolute rules for financing, but one absolute rule is if there is ANY chance that your loan is going to go beyond the term of the variable rate, and rates are at near historic lows, then get a fixed rate loan.

Consider the $1K in closing costs an insurance policy against the financially catastrophic rise in interest rates that will be necessary to combat the inflationary pressures of printing trillions of dollars a year.


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## Fishindude (May 19, 2015)

My old banker buddy told me to always get a fixed rate mortgage, no longer than 15 years, with no penalties for early payment.


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## HDRider (Jul 21, 2011)

I beg you. DO NOT do an ARM



altair said:


> looking at the lower rates of adjustables





altair said:


> We currently pay 3.85% fixed


That is not bad. How long to recoup your cost to refi?


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## HDRider (Jul 21, 2011)

po boy said:


> I relocated in 1981 and was happy to find a 9.5 I could assume.
> Now is the time to do a fixed rate.


I was 12.9 then


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## altair (Jul 23, 2011)

HDRider said:


> I beg you. DO NOT do an ARM
> 
> That is not bad. How long to recoup your cost to refi?


We didn't actually get the chance. We started the process in October of last year and just last week were told the appraisal had expired and we needed to cough up another one. Back in the fall our locked rate was 2.85%. But the lender needed updated everything every few weeks and finally said the rate was now 3.375% or if we didn't pay for another $500 appraisal, they could use the old one but we'd be penalized with a higher rate, points et al-- which was higher than what we're paying now. 

So I replied with a tactful version of 'shove it' and we only had to pay for the appraisal out of that mess. Not at all further ahead after several months ticked by but a little wiser.


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## altair (Jul 23, 2011)

Well I didn't expect the loan officer to email us back mentioning they spoke with their manager and they can ask the appraiser to do a re-certification and they will pay for it.

Maybe the prospect of moving our money elsewhere was motivating.


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## emdeengee (Apr 20, 2010)

We have always taken a fixed rate and have never been disappointed. We have friends and family who had variable rate mortgages over the past 40 years and everyone of them ran into trouble when the interest rates went up. One lost their home, another was able to sell - below value- just in time. Both of these losses were due to a jump from 4% to over 12% and with other debt load they could not sustain.
We made sure to get a mortgage that allowed us to make extra payments monthly and/or yearly to the principle. Even and extra $100 a month made a huge dent in the overall interest and we increased this as we were able to do so as well as paying a yearly lump sum and this allowed us to pay off our mortgage 5 years in advance. The variable rates would have been cheaper at the time for most of the time but in the long run our way saved us way, way more.


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## Danaus29 (Sep 12, 2005)

Our bank has been pushing us to refinance into a fixed rate loan. They call and say "this is extremely urgent, rates are about to go up". But when we try to talk to a mortgage banker, they never call back. If we wanted to borrow $75,000 or more, they would be falling all over each other to get our business.

altair, if you can get less than 3% on a fixed rate loan that would be great. I don't see how rates can get much lower than 3% but they certainly could go above 10% if the economy turns around in the next few years.


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## altair (Jul 23, 2011)

In order to keep our business, they agreed to keep the 2.80% (or 2.85%, decimal numbers have been swirling in my head), and pay for a re-certification of the appraisal at their cost. Sometimes it pays to complain (nicely with sarcasm). Preferable to my husband's reply with swearing he would have loved to send.


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## Fishindude (May 19, 2015)

Side tracking slightly, but doing business with these big multi branch mega banks and mortgage brokers may be the way to get the absolute cheapest loan, but the service and response time is often lacking, and they are often not so friendly to deal with. If you have a small locally owned bank in your neighborhood, do yourself a favor and try to do business with them. You can walk in and actually talk to the people that will handle your loans, get answers to your questions, get fast responses, less red tape, etc., plus you are keeping your money in local hands.


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## Mike in Ohio (Oct 29, 2002)

I agree with going fixed rate unless you know you will be selling the home well before the variable rate kicks in on an ARM. Another thing you might be able to do if you are looking to take advantage of lower interest rates is to speak with your lender and see if they will give a lower rate and reamortize at a lower rate. We bought a parcel of land in 2017 that had 3 homes on it and nestles into our farm. Because of the 3 homes on one parcel we ended up getting a commercial loan at 4.95%. At the time, residential loans were around 3.5%. A few months ago we told our bank that we were looking to refinance and Farm Credit was willing to give us a rate of 3.5% on a refinance. Our loan officer came back and gave us the option of doing a reamortization at 3.5% with no prepayment penalty but a $1,000 fee. No paperwork except a one page document to sign. We jumped on it. If we had done a refinancing we would have had to have appraisals for all the houses, provided tax returns, W2s and paid closing costs on the loan. The break even on the reamortization was 5 months and after that we saved about $250 a month.


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## altair (Jul 23, 2011)

Fishindude said:


> Side tracking slightly, but doing business with these big multi branch mega banks and mortgage brokers may be the way to get the absolute cheapest loan, but the service and response time is often lacking, and they are often not so friendly to deal with. If you have a small locally owned bank in your neighborhood, do yourself a favor and try to do business with them. You can walk in and actually talk to the people that will handle your loans, get answers to your questions, get fast responses, less red tape, etc., plus you are keeping your money in local hands.


Oddly enough a local bank is what I went with. The only issue is all of it was through email instead of in-person because of Covid.


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## Wellbuilt (Dec 25, 2020)

There is no need to explain the difference. NO not now not ever


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## Alice In TX/MO (May 10, 2002)

What?


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## haypoint (Oct 4, 2006)

Everyone thinks they'll be paying it off soon. But often things happen that cause us to refinance. So, we get into the Bank finance treadmill. Current fixed rates are at historical low rates. Not so long ago, bank mortgage rates were above 16%, thanks to Carter. The Feds just added 6 trillion to the National debt. I see inflation coming. That will boost interest rates. Storage lockers operate on a similar false belief, "we'll only need to pay for storage a couple months." But there you are a couple years later paying more in storage that the whole mess would bring at a yard sale. Payroll loans prey on the belief that there is smooth sailing in the future. But it is a trap. So are variable rate mortgages.


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