Should You Get A Fixed Rate Or Adjustable Rate Mortgage?
Are you buying a home and not sure if you should get a fixed-rate or adjustable-rate mortgage? It will help to know the following information about them to help you make a choice.
As the name implies, an adjustable-rate mortgage will change the interest rate after a set period of time. You'll likely have a fixed rate for that first year, and there will be a cap when it comes to what percentage it can go up or down to at each adjustment period. There are also lifetime caps where you know that your mortgage will not exceed a certain interest rate, which can give you peace of mind about what the lowest and highest potential payment can be.
An adjustable-rate mortgage is best for people that feel that interest rates are going to go down in the future. This allows you to get the mortgage that you want now, but still take advantage of those lower interest rates in the future. While it is a bit of a gamble about if the interest rate is going to go up or down, it gives you the opportunity to buy a home and save money over time. Of course, you always have the option to refinance if you don't want the variable interest rate anymore.
A fixed-rate mortgage is going to keep the exact same interest rate over the entire length of the mortgage. Many homeowners love this because it provides predictable monthly payments over the entire lifetime of the loan that they know they can afford. The interest rate is locked no matter what, even if interest rates rise and go much higher than where they were when you got your mortgage.
In addition, you'll get an amortization table with your fixed-rate loan, showing you exactly how much of the payment is made up of principal and interest for the entire length of the mortgage. You can also make additional principal payments to shorten the length of the loan and reduce how much interest you are paying over time, which gives you some flexibility if you can suddenly afford to pay more toward your mortgage each month.
Are you still undecided about if you should go with a fixed-rate or adjustable-rate mortgage? Reach out to a lender in your area for help deciding between these two mortgage products, or for more information about financing your home loan.