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Understanding Fixed Rate Home Loans vs. Adjustable-Rate Mortgages (ARMs)

Choosing the right type of mortgage is one of the most important decisions you can make when buying a home. At Pendleton Community Bank (PCB), we offer both fixed-rate home loans and adjustable-rate mortgages (ARMs), each catering to different financial needs and situations. Here’s a detailed look at how each type of mortgage works and the benefits they can offer to help you make an informed decision.

Fixed Rate Home Loans

Fixed-rate home loans are known for their straightforward and consistent approach. When you choose this type of loan, your interest rate stays the same for the entire duration, meaning your monthly payments won't change at all. This consistency is great for planning your finances since you can predict your monthly expenses without worrying about future rate hikes.

This type of mortgage is ideal if you're planning to stay in your home for many years, as it protects you against potential increases in interest rates, which could make other types of loans more expensive over time. Plus, it makes comparing loans simpler because you can easily see the total cost upfront.

What is a loan term rate?

Fixed-rate loans often offer a variety of term lengths, such as 15 or 30 years, empowering you to decide the pace at which you want to repay your home. Opting for a shorter term may result in higher monthly payments, but it also means significant interest savings in the long run. Conversely, longer terms reduce your monthly payment, but you'll end up paying more interest over the loan's lifespan.

Some fixed-rate mortgages even offer the flexibility to make extra payments to pay off your loan early without penalties, depending on the lender. This feature can be a game-changer in reducing long-term interest costs if you find yourself in a position to pay more than the minimum. This flexibility can be particularly comforting if you want to manage your debt more aggressively.

Why should I choose a fixed-rate mortgage?

Opting for a fixed-rate mortgage often boils down to valuing predictability and stability in your financial planning, ensuring you have a comprehensive understanding of your payment obligations right from the start.

Understanding Adjustable-Rate Mortgages (ARMs)

Adjustable-rate mortgages offer initial lower interest rates compared to fixed-rate mortgages, making them an attractive option for reducing payments in the short term. However, after the initial fixed period, which commonly lasts 3, 5, 7, or 10 years, the rate can change based on market conditions. This means your monthly payments can either increase or decrease.

What are the risks of adjustable-rate mortgages?

ARMs include the potential for higher future payments if market interest rates rise. ARMs are capped to limit how much the interest rate can increase during each adjustment period and over the life of the loan, offering some protection against large increases.

Who are ARM loans good for?

ARMs are well-suited for those who expect an increase in future earnings or plan to sell their home before the interest rate adjusts. They provide a flexible, lower-cost option for the short term but require planning for the possibility of rising rates.

Key differences between fixed and ARM mortgage loans

  • Interest Rate Stability: Fixed-rate loans lock in your interest rate for the life of the loan, providing protection against interest rate increases. ARMs offer a lower initial rate, but this rate can change after the introductory period, potentially leading to higher future payments.
  • Long-Term Cost: Fixed-rate loans generally cost more over the long term because they start with a higher interest rate compared to the initial rate of an ARM. However, they offer cost stability. ARMs might be less costly in the short term but pose a risk of higher costs later if interest rates rise.
  • Flexibility: ARMs provide more flexibility for buyers who don’t plan on keeping their home for many years. Since the rates are lower initially, it could make sense if you plan to move or refinance before the rate adjusts.


Should I do a fixed or adjustable-rate mortgage?

The choice between a fixed-rate mortgage and an ARM depends largely on your financial situation, how long you plan to stay in your home, and your tolerance for risk in interest rate fluctuations. PCB can help you navigate these choices with tools like our Adjustable-Rate Mortgage Calculator, which estimates your payments and compares options.

Your Mortgage Lender in Virginia and West Virginia

For more information and to discuss the best mortgage option based on your personal circumstances, please visit PCB's mortgage page or contact our loan specialists. Our experts are well-versed in both fixed-rate and adjustable-rate mortgages and can guide you through the nuances of each to find the best fit for your needs.

Explore your mortgage options with PCB or reach out directly to our branches in Harrisonburg, Bridgewater, Staunton, and throughout Virginia and West Virginia. Let us help you secure the perfect mortgage that aligns with your financial goals.