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How does the type of mortgage, such as fixed-rate or adjustable-rate, impact the interest rate?

Curious about Mortgage rates

How does the type of mortgage, such as fixed-rate or adjustable-rate, impact the interest rate?

The type of mortgage can have a significant impact on the interest rate. A fixedrate mortgage has an interest rate that stays the same for the entire term of the loan, while an adjustablerate mortgage (ARM) has an interest rate that can change periodically, based on market conditions.

In general, fixedrate mortgages tend to have higher interest rates than adjustablerate mortgages because they offer more stability and predictability for borrowers. With a fixedrate mortgage, borrowers know exactly what their monthly payment will be for the entire term of the loan, which can make budgeting and financial planning easier.

On the other hand, adjustablerate mortgages typically start with a lower interest rate than fixedrate mortgages, but the rate can fluctuate over time, which can make budgeting and financial planning more difficult. The interest rate on an adjustablerate mortgage is usually tied to a benchmark index, such as the prime rate or the LIBOR rate, which can change over time based on economic factors.

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