Mortgage Repayment Methods: Which One is Right for You?

Summary

Choosing the right mortgage repayment method can save you tens of thousands in interest. This article explains the differences between fixed-rate and variable-rate mortgages, who they're best for, and how to choose.

What is a Fixed-Rate Mortgage?

A fixed-rate mortgage is the most common repayment method, with the same monthly payment throughout the entire loan term.

Characteristics

• Same monthly payment — easy to budget
• Interest portion is higher in the early years
• Total interest paid is higher

Best For

• Homebuyers with stable income
• Those who want predictable payments
• People planning to stay long-term

What is an Adjustable-Rate Mortgage (ARM)?

An ARM has interest rates that can change over time, based on market conditions.

Characteristics

• Lower initial rates, typically 5/1 or 7/1 ARM
• Payments can increase or decrease
• More risky but potentially cheaper

Best For

• Those planning to sell within 5-7 years
• Homebuyers who expect rates to fall
• Risk-tolerant borrowers

Comparison

Example: $400,000 loan, 30 years, 6% rate:

How to Choose?

Choose Fixed-Rate if:

• You want payment stability
• Your income is stable
• You plan to stay in the home long-term
• Current rates are acceptable to you

Choose ARM if:

• You plan to move in 5-7 years
• You expect rates to drop
• You can handle potential payment increases
• You want to save money initially

Money-Saving Tips

1. Make extra payments: If you have extra funds, consider paying down principal

2. Refinance: If rates drop significantly, consider refinancing to a lower rate

3. Shorten the term: Consider a 15-year term to save on interest

4. Make a larger down payment: Reduce your loan amount

Related Calculators

• Mortgage Calculator - Calculate monthly payments and total interest
• Early Payoff Calculator - Calculate interest savings from early payoff
• Rent vs. Buy Calculator - Decide whether to rent or buy