Is a fixed-rate mortgage or an adjustable-rate mortgage the better move for your Levelland home purchase? You want a payment you can live with today and a plan that still makes sense a few years from now. In this guide, you’ll see how each loan works, where they shine, and how to choose based on your timeline, budget, and local factors in Hockley County. Let’s dive in.
Fixed vs ARM basics
A fixed-rate mortgage keeps the same interest rate for the entire loan term. Your principal and interest payment stays steady, which makes budgeting simple.
An adjustable-rate mortgage (ARM) starts with a fixed rate for a set period, then adjusts at a stated frequency. For example, a 5/1 ARM is fixed for five years, then can change once a year after that.
Key ARM terms to know
- Index: The market benchmark your ARM follows after the fixed period. Many ARMs use SOFR or a Treasury index.
- Margin: A set percentage the lender adds to the index to set your new rate after adjustments.
- Caps: Limits on rate changes. Most ARMs disclose an initial cap, a periodic cap, and a lifetime cap.
- Floor: A minimum rate the loan will not go below.
- Adjustment frequency: How often the rate can change after the fixed period, often annually.
- APR vs note rate: APR includes certain fees and helps compare overall cost. For ARMs, APR does not predict future adjustments.
Lenders must provide clear disclosures, including a Loan Estimate and Closing Disclosure that outline how your ARM can adjust and what the caps are.
How to decide in Levelland
Match your loan to your timeline
- Short stay under the initial ARM period: An ARM often starts with a lower rate and payment, which can help affordability if you plan to sell or refinance before adjustments.
- Medium horizon near the ARM reset window: You trade lower early payments for more uncertainty later. Consider job stability and your ability to refinance.
- Long-term hold of 7 to 30 years: A fixed-rate loan typically provides the most predictability and protection against rising rates.
Consider your cash flow and risk comfort
- ARMs can lower your payment early. You should prepare for higher payments after the fixed period. Stress-test your budget with rate increases of 2 to 4 percentage points.
- Fixed loans usually start higher than ARMs but stay steady. This can be helpful if you need a predictable monthly payment.
Local factors Levelland buyers should check
- Property taxes: Texas property tax rates are often higher than many states. Review Hockley County tax rates and available homestead exemptions.
- Insurance: West Texas policies often consider wind and hail exposure. Get quotes early so you know the full monthly cost.
- Loan programs: Many rural-area buyers consider USDA Rural Development loans. You can also explore state options through Texas homebuyer programs, along with FHA and VA where eligible.
- Jobs and income: Levelland is influenced by agriculture and the broader Lubbock area. Think about your job outlook and how stable your income will be over the next 3 to 10 years.
Payment examples for Levelland buyers
Below are illustrative assumptions to show how payments can differ. These are examples only. Always compare with current rates and your actual price point.
Assumptions for illustration:
- Price points: $150,000, $250,000, $350,000
- Down payment: 20 percent (loan equals 80 percent of price)
- 30-year fixed rate: 6.50 percent
- 5/1 ARM initial rate: 4.00 percent for 5 years, then annual adjustments
- Example ARM caps: 2/2/5
Example monthly principal and interest
| Home price | Loan amount | 30-year fixed @ 6.50% | 5/1 ARM initial @ 4.00% |
|---|---|---|---|
| $150,000 | $120,000 | ~$758/mo | ~$573/mo |
| $250,000 | $200,000 | ~$1,263/mo | ~$955/mo |
| $350,000 | $280,000 | ~$1,769/mo | ~$1,337/mo |
On a $250,000 home with 20 percent down, the ARM’s initial payment is about $308 per month lower than the fixed loan in this example.
First 5 years of interest (illustrative)
For a $150,000 home with a $120,000 loan:
- 30-year fixed at 6.50 percent: about $37,800 interest in years 1 to 5.
- 5/1 ARM at 4.00 percent: about $22,900 interest in years 1 to 5.
This shows how ARMs can reduce early interest costs if you plan to move or refinance before the first adjustment.
What happens when the ARM adjusts
Illustrative case: $250,000 home, $200,000 original loan. After five years, the ARM balance is about $180,860.
If the new rate in year 6 is:
| Adjusted rate | New payment (approx.) |
|---|---|
| 6.0% | ~$1,164/mo |
| 8.0% | ~$1,395/mo |
For comparison, starting with the 30-year fixed from day one is about $1,263 per month in this example. If the ARM adjusts to a higher rate, your new payment can surpass the fixed payment. If it adjusts only moderately, it may remain lower.
Break-even, refinance, and alternatives
- Break-even timing: Compare total payments and interest across your expected hold period. ARMs often win early and can lose later if rates rise.
- Refinance planning: Your ability to refinance depends on future rates, your credit, your home equity, and closing costs. Estimate refinance costs and how many months of savings it takes to recoup them.
- Alternatives to consider: You can compare a shorter-term fixed loan for a lower rate than a 30-year, or ask about temporary rate buydowns to lower early payments without using an ARM.
What to ask your lender
Use this checklist when you compare options, especially ARMs:
- What index does the ARM use, and what is the margin?
- What are the caps: initial, periodic, and lifetime?
- Is there a rate floor?
- How will my payment be recalculated after each adjustment?
- Do I qualify at the initial rate or a higher qualifying rate?
- Are there any prepayment penalties or conversion options?
- What is my worst-case payment if the rate hits the caps?
- How would higher taxes and insurance change my total monthly cost?
Also stress-test your budget with rate increases of 2 to 4 percentage points and build emergency reserves of at least 3 to 6 months of expenses.
Local programs and practical notes
- Property taxes and exemptions: Review Hockley County homestead exemptions and filing timelines to reduce your taxable value where eligible.
- Insurance: Ask your agent about wind, hail, and any additional coverage needed for rural structures. If a property is in a flood zone, flood insurance may be required.
- USDA, FHA, VA, and state programs: USDA may be available for eligible rural properties with no down payment. FHA and VA can fit many buyers. Texas homebuyer programs may offer down payment assistance if you qualify.
- Preapproval: Compare a 30-year fixed and a 5/1 ARM side by side with the same price, down payment, and assumed taxes and insurance. Ask for an itemized Loan Estimate on each option so you can see fees and total costs.
Next steps
Choosing between a fixed rate and an ARM is about aligning the loan with your timeline, budget, and comfort with risk. If you expect to move or refinance within five years, an ARM can unlock lower upfront payments. If you want long-term predictability, a fixed rate often fits best.
You do not have to decide alone. Our team helps Levelland buyers compare real numbers for your price point, taxes, and insurance so you can pick the right loan path with confidence. Reach out to schedule a friendly planning call with Condor Property Group.
FAQs
What is the main difference between fixed and ARM loans?
- A fixed-rate loan keeps the same interest rate for the entire term, while an ARM starts fixed for a set period and then can adjust based on a market index and margin.
When does an ARM make sense for a Levelland buyer?
- If you plan to own the home for fewer years than the ARM’s initial fixed period, the lower starting rate can reduce payments and interest during your expected timeline.
How risky is an ARM if rates rise later?
- Your payment can increase after the fixed period, limited by rate caps, so you should stress-test your budget with 2 to 4 percentage point increases.
Do Hockley County property taxes affect which loan I should choose?
- Yes, higher property taxes increase your total monthly cost, so weigh your full payment with taxes and insurance when comparing a fixed loan and an ARM.
Are USDA loans an option around Levelland, and how do they compare?
- Many rural-area homes may be eligible for USDA loans with no down payment, which you can compare against conventional fixed and ARM options for total cost.
Can I refinance from an ARM to a fixed loan later?
- Yes, many buyers refinance if they have the equity, credit, and a favorable rate environment, but you should factor in closing costs and break-even time.