Which is the better mortgage option for you: fixed or adjustable?
There are lots of ways to finance a home in today's improving economy. For all mortgage applicants, though, it will eventually be time to decide whether to use a “fixed rate" or "adjustable-rate" mortgage. Each has its merits and drawbacks, and with a loan representative guiding you through the process, you'll be in position to decide which loan type is best for you.
The low initial cost of adjustable-rate mortgages, or ARMs, can be tempting to homebuyers, yet they carry a degree of uncertainty. Fixed-rate mortgages offer rate and payment security, but they can be more expensive.
Here are some pros and cons of adjustable-rate and fixed-rate mortgages.
Adjustable-rate mortgage (ARM)
Advantages:
Feature lower rates and as a result, borrowers can buy larger homes than they otherwise could buy
Allows borrowers to take advantage of falling interest rates without refinancing.
Helps borrowers save and invest more money.
Offers a less expensive way for borrowers who don’t plan on living in one place for very long to buy a house.
Disadvantages:
Rates and payments can rise significantly over the life of the loan.
ARMs are difficult to understand and may not be the best choice for a first-time home buyer.
On certain ARMs, called negative amortization loans, borrowers can end up owing more money than they did at closing.
Fixed-rate mortgage
Advantages:
Rates and payments remain constant, despite what happens in the broader economy.
Offers stability which makes budgeting easier. People can manage their money with more certainty because their housing payments don’t change.
Simple to understand, so they’re good for first-time buyers.
Disadvantages:
To take advantage of lower rates, fixed-rate mortgage holders have to refinance.
Can be too expensive for some borrowers because there is no early-on payment and rate break.
ARMs can be customized for individual borrowers, while most fixed-rate mortgages can’t.
Interested in finding out more about fixed and adjustable-rate mortgages? Contact Mid-Island Mortgage today.
