Fixed Rate Mortgages vs

Adjustable Rate Mortgages

With any purchase, people want to make the most out of their money. The same can be said when you buy your home. By calculating your monthly expenses and comparing that to your monthly income you can determine what price you can afford. Click here for more information. However, once you speak with a loan officer, you will find out that there are two types of mortgage loans, fixed-rate and adjustable-rate. Depending on which you choose, you could save money in the long run, but how will you determine which is right for you?

Understanding Fixed-Rate Mortgages

With a fixed-rate mortgage, the interest rate never changes. This means your payments will remain stable throughout the life of your loan. Calculate the payment to see if it falls within your budget. Also, consider how long you plan on living in your home and the current interest rates. If the rates are low, or if you plan on staying in a home for a long period of time, a fixed rate is probably for you.

Understanding Adjustable-Rate Mortgages (ARM)

With an adjustable-rate mortgage (ARM), the interest rate changes at regular intervals — usually once every year. This rate change is based on a formula that uses a market index. For most ARM options, rate adjustments begin after an initial period — usually between 5 and 7 years. The rates are fixed until the next adjustment. Again, consider how long you will be in your home and the interest rate. If you plan on moving before the rate change or if interest rates are high, it may be better to get an adjustable-rate mortgage.

Talk to a Professional

Buying a home is a big decision. All buyers want a home they love and a home they can afford. Loan officers understand this. Ask questions when talking to them. You ultimately make the final decision, but loan officers will take your situation into consideration, show you what options are available, and give you recommendations that can help you in making your big decision.