Fixed-rate mortgages and adjustable-rate mortgages both have their pros and cons. Depending on the market, your financial stability, and what your looking for, either one can be a good option. In this blog we will describe the positives and negatives of each option.
A fixed-rate mortgage means that the interest rate you close at will remain the same for the entire duration of the loan. Even when the market shifts and rates change, your monthly principal payments and interest will remain the same. The biggest pro of having a fixed-rate mortgage is that payments will stay mostly constant no matter what occurs in the current market and economy the only potential change will be in the cost of property taxes and insurance. Fixed-rate mortgages are great for first-time home-buyers because they are easy to understand. Another benefit is that a fixed-rate mortgage allows you to manage and budget your money a lot easier. You will always know what your monthly payment will be because it will not change. A con of an FRM is that when rates drop, the only way for you to capitalize on that is by refinancing. Another con is that initial interest rates for a fixed rate mortgage are usually higher than adjustable rates.
An adjustable-rate mortgage is a loan with an interest rate that changes as the market fluctuates up and down. When you first close your loan the initial interest rate will remain the same for a certain period of time. When that fixed period ends the interest rate will move up and down based on the market. A pro of using an adjustable rate mortgage is that you will receive a lower rate and payment early in the loan term during the initial fixed period. Arm’s could be the right option for you if you don’t plan on living in one place for very long, because you will most likely save money because of the lower interest rate in the beginning years of the loan. The best advantage of an adjustable-rate mortgage is that when interest rates drop you will be able to take advantage of it without refinancing. This pro can also be the arm’s biggest weakness. Loan rates and monthly payments may increase as the market shifts. Another con is that adjustable-rate mortgages can also be harder to understand, and they can make it difficult on your budget with the rates volatility.
In conclusion, depending on your financial situation and what you are looking for, either of these home loan options could be the right one for you. Contact one of our loan officers today with any questions you may have.