Adjustable vs Fixed Rate Mortgages – When purchasing a home, one of the first decisions you will have to make is whether to choose a fixed or variable rate mortgage. Fixed-rate mortgages and Adjustable-rate mortgages are the two primary types available to buyers. Which one choose depends on your income, lifestyle and risk tolerance.
A fixed-rate mortgage charges a set rate of interest that does not change throughout the life of the loan. Although the amount of principal and interest paid each month varies from payment to payment, the total payment remains the same, which makes budgeting easy for homeowners.
A fixed-rate mortgage is a set or ‘fixed’ interest rate that a lender will charge you during the term of your loan. This option is a safe way to which makes budgeting easy for homeowners.
The main reason why many people elect for a fixed- rate mortgage is that it protects the borrower from sudden changed in the overnight rate. If the rate increases, so does your monthly mortgage payments.
The downside to having a fixed- rate mortgage is that if you are borrowing at a high rate of interest you will always be paying that rate, as oppose to people with a variable rate in which they will be paying the lower amount. Another downside is that if interest rates are high and you are opting for a fixed rate mortgage, you will qualify for less.
Although the rate of interest is fixed, the total amount of interest you’ll pay depends on the term of your mortgage. Conventionally lenders will offer fixed-rate mortgages in a variety of terms, the most common of which are 30, 20 and 15 years. The 30-year mortgage term is the most common for borrowers as it offers the lowest monthly payments.
An adjustable – rate mortgage means that The interest rate varies over time. The initial interest rate is set at the market rate or below and the rate rises and lowers depending on the interest rate schedule and the margin charged by the lender. adjustable – rate mortgages have a fixed period of time during which the initial interest rate remains constant, after which the interest rate adjusts at a pre-arranged frequency.
Consumers find ARMs appealing as they offer low initial payments which enables borrowers to qualify for a larger loan.
The downside of an adjustable- rate mortgage is that borrows may find it hard to keep up with the payments as payments increase.
Regardless of the loan that you select, choosing carefully will help you avoid costly mistakes.
You can choose an adjustable or fixed rate mortgage when you apply using the My Mortgage Auction app! So what are you waiting for?