Deciding on Fixed Rate or Adjustable Mortgages

Fixed or Adjustable Mortgage

Fixed or Adjustable Mortgage

Generally it’s been the 30 years, fixed rate mortgage, that has served as the staple of our home loan industry. But today, you have a much wider variety of choices, for either fixed or adjustable mortgages at the top of the list.

Here’s how to decide which one is right for you:

Nearly everyone, at some time or other, is going to look into obtaining a mortgage for a home or for refinancing. When they do, they’ll be faced with two options – the ‘fixed rate’ and ‘variable rate’ mortgage. The two are quite different, and will depend on the borrower’s situation as to which one is right. The current interest rates will have a hand in this determination as well. Both types have advantages as well as disadvantages, which is why they need to be carefully looked at.

The ‘FRM’, or fixed rate mortgage, has a solid interest rate for the life of the mortgage term. This rate never changes or varies. As the homeowner, you won’t need to be worried about any sudden changes in the market affecting your monthly payments or your interest. It’s all set ahead of time.

A fixed rate mortgage is determined by what the prime interest rate is at the time of obtaining the loan, and by the measuring of credit scores along with a few other variables. It’s a good solid option for those who aren’t into risk.

The ‘ARM’, or Adjustable Rate Mortgage, carries more risk. It starts out with a lower rate, and in the right situation can prove very cost effective. At the same time, they can lead you into a much higher interest rate over time. They may start out lower, but they can be affected by market changes and fluctuating interest rates. Whenever interest goes up, so do the ARM rates. So basically, when you take the ARM, you need to have a good grasp on how the current market is.

If the market is high, you may be better off going with an ARM, starting with the lower interest rate, then stay with those rates until the market rates fall. But if at the time of your loan, the interest is low, you may want to get locked into an FRM. If you take an ARM when interest is low, you might see some very significant increases in your rates over time. When rates are rising, those with ARMs are now a worry to lenders over defaulting.

As you can see, both mortgage types have their uses and their own pros and cons. Whenever you consider getting a mortgage against your home, it’s crucial that you totally evaluate the situation, both financially for you, and according to the market. See what will be best over the long haul. Find out what kind of payments you can get from both types of loan. Choose what will be the best for your particular situation, both short term and long term. It takes a little planning and study to get this right, but it’s well worth looking over carefully before deciding.