Lending Analysis

Core Concepts

Fixed-Rate Mortgage

The interest rate and monthly payment remain constant for the life of the loan:

• Advantages: Predictable payments, protection against rising rates, simpler budgeting
• Disadvantages: Higher initial rate than ARM, no benefit if rates decline (must refinance)
• Most common terms: 30-year and 15-year fixed

Adjustable-Rate Mortgage (ARM)

Rate is fixed for an initial period, then adjusts periodically based on an index plus a margin: