ARM vs Fixed Mortgage Rates.
If you are a first time home buyer and don't know a thing about mortgages you're not alone. A lot of times when people talk about mortgages, interest rates and other concepts it may sound kind of complicated. For example, what is an adjustable mortgage rate? What is a fixed mortgage rate? Which one is better? In this blog post I'm going to talk about the difference between an adjustable mortgage rate and a fixed mortgage rate.
Fixed Mortgage Rates.
Most people have a fixed mortgage rate. All a fixed mortgage rate is is just that, fixed. If I purchase a home for $300,000 and on the mortgage the rate is 6.5% that's the only rate my payment will ever be. It's not going to change. Most people attain a fixed mortgage rate because it's simple, to the point and predictable.
The downside to the fixed mortgage rate is perhaps in your Market or the mortgage that you qualified for the interest rate is going to be really high like 7%. Are you willing to pay 7% interest rate for your 20 to 30 year mortgage? It may or may not make sense to you. But it's all in the math. Can you afford to pay $2200/month for the next 30 years? How about $3,000? Do you make enough money? Will you make more money later on? These are questions to ask yourself.
Adjustable Mortgage Rates ARMs……
On the flip side we have the adjustable mortgage rates (ARM)s. This type of mortgage is not as popular because the rate adjusts. Most people would rather have something simple. Why in the world would we want to have our mortgage rates switch up on us?
For some, this might work, believe it or not. I say so because what an ARM a lot of the times your mortgage rate starts really low for a period of time. Then after maybe 3 years it might go higher for a year or so. But after that period of time you're going to have the mortgage rates for a long time.
It's adjustable but that doesn't necessarily mean that it's unpredictable either. The terms will be disclosed ahead of time. Just plan for the rate change.
This may be a good idea for a first time home buyer in a seller's market to make it more affordable at first. Especially now with interest rates being at 7%. As far as the rate change it's up to the buyer to prepare for it.
With all that being said, which would you rather have?
Let's talk more if you're looking into purchasing a new home.