Choosing Between a Fixed and Adjustable-Rate Mortgage in Florida

Many homebuyers focus on a home's purchase price and down payment, but choosing the right mortgage is just as important. The loan that works best for one borrower may not be the right fit for another, which is why it's important to understand your options before moving forward. By comparing fixed-rate and adjustable-rate mortgages and considering your financial goals, timeline and budget, you can feel more confident about your path to homeownership.

Fixed-rate and adjustable-rate mortgages are two of the most common options available to homebuyers. Understanding how each works can help you choose a loan that aligns with your financial goals, budget and homeownership plans.

Fixed-rate mortgages have a set interest rate and predictable monthly payments for the life of the loan, while adjustable-rate mortgages offer a fixed rate for an introductory period before the rate and payment can change. The right option depends on factors such as how long you plan to stay in the home and your comfort level with potential changes to payments.

How a Fixed-Rate Mortgage Works

Fixed-rate mortgages offer predictable, level payments and a set interest rate over your repayment term. A fixed-rate loan often makes sense if you plan to stay in your home for many years. Borrowers also appreciate the predictable payments a fixed-rate loan offers, which can make budgeting easier. 

With this loan structure, these elements stay the same from closing through mortgage payoff, though your payment amount might fluctuate due to property tax changes:

• Interest rate
• Principal and interest payment amount
• Repayment term

Seacoast currently offers 15 and 30-year mortgages with competitive rates. A Seacoast loan officer can help you determine how different repayment terms impact your monthly and overall interest costs.

How an Adjustable-Rate Mortgage Works

Adjustable-rate mortgages (ARMs) can offer a lower introductory rate than a traditional fixed option, which could reduce your interest costs if you only plan to stay in your home for a few years.

The Fixed Period and Adjustment Period

An ARM provides a set rate for an introductory period, typically five, seven or ten years. After the introductory period, the rate changes at a set interval, often every six months or annually, based on market indices.

For example, a 5/6 ARM offers a fixed rate for five years, after which the rate adjusts every six months. With a 7/6 ARM, your rate is fixed for seven years and adjusts every six months after that.

An adjustable-rate mortgage (ARM) can be a good fit for buyers who expect to relocate, upgrade homes or refinance before the initial fixed-rate period ends. With often lower introductory rates than fixed-rate mortgages, an ARM may offer short-term savings. Seacoast can help borrowers evaluate different scenarios and determine whether an ARM fits their financial goals and homeownership plans.

Rate Caps and What They Mean for Your Payment

ARMs typically limit how much the interest rate can go up over time. An initial adjustment cap limits rate increases at the first adjustment once the fixed period ends. Subsequent adjustment caps and lifetime adjustment caps might also apply. Here’s an example of how these limits could work on a 5/6 ARM:

When your rate increases, your monthly payment also goes up. So if you began with a 6.50% rate and a $1,700 monthly payment, but your rate adjusts to 9.50%, your new monthly payment would be $1,862. Reviewing rate cap structures and potential payment changes over time can help you determine if an ARM is right for your situation.

Fixed vs. Adjustable Rate Mortgage

If you’re comparing fixed vs. adjustable-rate mortgages, here’s what you might expect from each and which loan could make sense for which homebuyer.

A high-level comparison of the two loan types can be useful, but the right option depends on factors such as future housing plans, budget flexibility and refinancing goals. Consider these before choosing a loan structure.

Which is Right for Florida Homebuyers?

Consider your goals and how long you plan to stay in your new Florida home as you shop for a mortgage. Thoughtfully comparing options can help you save on interest costs.

A fixed rate makes sense if…

• You plan to stay in your home for many years. For example, if you’re buying a retirement home, relocating to Florida permanently or buying a primary residence to raise a family, a fixed-rate mortgage is a good option.
• You want predictable monthly payments. First-time buyers, retirees on a fixed income and homeowners managing a tight budget might appreciate level payments.
• You are moving from a high-cost state and want certainty in your housing expenses. Locking in a fixed rate can make it easier to budget as you adjust to a new market and cost of living.
• Interest rates are relatively low, or the market is experiencing a period of rate uncertainty. If rates fall significantly in the future, refinancing may still be an option.

An ARM makes sense if…

• You plan to sell or refinance your home within five to seven years. This may apply if you anticipate relocating for work, expect a military transfer, plan to upgrade to a larger home or intend to refinance before the adjustment period begins.
• You're purchasing a second home or seasonal Florida residence. Some snowbirds and part-time residents may find an ARM appealing if they expect to own the property for a shorter period.
• The introductory rate is low, and potential savings are meaningful. For example, a 6.00% versus a 6.75% rate on a $350,000 loan results in roughly $170 in monthly savings, and over $10,000 saved over a five-year period.
• You can manage a higher payment if rates increase after the initial fixed-rate period.

The Bottom Line on Fixed vs. Adjustable-Rate Mortgages

The best home loan for you depends on your situation, your timeline and your financial goals. Comparing loan types and estimating your loan costs before applying can help you choose the right mortgage and potentially save money on interest.

If you’re unsure whether a fixed or adjustable-rate loan makes sense, discuss your mortgage options with a Seacoast mortgage loan officer. They can run the numbers to determine which mortgage works best for your situation.