When deciding between loan options, one of the first things to consider is whether you want a fixed or adjusted mortgage. An adjusted or adjustable rate mortgage can be an excellent choice for certain financial situations, while fixed rate mortgages might provide more advantages.
To help you decide which option works best for you, here are some more facts about these two mortgage types:
What is an adjustable rate mortgage (ARM)?
With adjustable rate mortgages, the interest rate varies over the life of the loan. Interest rates for ARMs typically start off lower than those in a comparable fixed-rate loan and rise as they accumulate over time.
Adjustable rate mortgages typically have a period for which interest rates remain constant, after which interest rates adjust on a prearranged periodic basis. Fixed rate periods can be anywhere from 1 to 10 years long.
What is a fixed rate mortgage?
The interest rate for a fixed-rate mortgage will remain unchanged over its entire lifetime. This means your total monthly payments are the same every time, which can make budgeting simpler for homeowners.
In addition to easier budgeting, they offer protection from outside economic factors like dramatic changes in mortgage interest rates.
Choosing which loan is best for you
When it comes to choosing a mortgage, there are multiple personal and financial realities to weigh. While your individual financial situation might fluctuate over time, interest rates can also rise or fall based on broader economic factors.
A fixed rate mortgage will help you create a rock solid budget, no matter how interest rates might change over time. However, an adjustable rate mortgage might be easier to qualify for because of their requirements, since the interest rates are not fixed and the lender may increase them as the market changes.
Keep these factors in mind and discuss your options with a financial advisor to determine the best possible choice for your financial needs.