Fixed VS. Adjustable Mortgages
One of the first choices a home buyer will need to make is whether you want a fixed-rate or an adjustable-rate mortgage loan. The bulk of loans will fit into one of these two categories, however, there is a third option that will allow you to “hybrid” the two.
What is An Adjustable Rate Mortgage?
An adjustable-rate mortgage, (ARM): The interest rate of the mortgage adjusts periodically based on market conditions. For example, your payment will go up if rates go up and go down if rates go down. Fixed-rate Mortgage: Unlike an adjustable-rate mortgage the interest rate is set at the time you take out the loan and will not change. Fixed-rate home loans can be 10 years, 15 years, 20 years or 30 years fixed. 30-year fixed is the most common because it allows your mortgage payment to be the lowest. Hybrid ARM: Features an initial fixed interest rate for a certain amount of time and then becomes an adjustable-rate for the remainder of the term. Standard terms are 3, 5, 7, or 10 yrs.
Here is a video explaining how ARM’s work:
What Is a Fixed Rate Mortgage?
Fixed rate, different from it’s adjustable counterpart, does not adjust at any point in the loan term. You can expect a static principle and interest payment the entire time. This is the most common type of mortgage as it is the most reliable. Fixed rate mortgages come in any variation of terms from 5 years to 30, we are able to issue irregular terms like 7, 11 and 14 years as well.
Why Do An Adjustable Rate Mortgage?
The reason most people do an adjustable rate mortgage (ARM) is because they do not anticipate being in the property for an extended period of time. They either intend to sell the property and move, or their employer periodically moves them around. We also see people procure ARM’s when they are not as concerned about the fluctuating payment, an ARM is a good way to pay your mortgage down faster if you are able to make excessive monthly payments. The rates are lower than their fixed counterpart and allow people to pay the principle down faster with larger payments.
I Am a First Time Home Buyer, Is An Adjustable Rate Mortgage Right For Me?
You and your trusted mortgage professional are the only ones who can determine what mortgage product is best for you, a good professional will take into consideration your long term plans. Are you thinking of starting a family? Will your job move you in the future? Is this your starter home or do you intend to be in it for awhile? These are all considerations that will determine if an adjustable rate mortgage is good for you.
Here is a good video for first time home buyers when it comes to ARMS and Fixed:
How Do I Find Out If An Adjustable Rate Mortgage Or Fixed Rate Mortgage is My Best Option?
The best way to do this is to sit down with a trusted mortgage professional to go through all the options. You should assess your long and short term goals to figure out what is the best product for you. Take into consideration projected changes in your future. A good loan officer will be able to assist in helping with this.
You can apply here or contact me directly anytime.
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