Mortgages: Fixed Rate or Adjustable Rate?
Mortgages: Fixed Rate or Adjustable Rate?
There are two very common forms of mortgages in the world and they both have their pros and cons. So the question is: which one is better? What are these pros and cons?
Fixed Rate Mortgage
A fixed-rate is perhaps the most common form of mortgage between these two; however, there are still questions that surround it lime what it is and what are characteristics of it?
A fixed-rate mortgage is a mortgage that has one mortgage rate that does not change throughout the life of the mortgage; hence, the name fixed-rate. The rate is fixed where it is from the start.
As the life of the loan shortens and you make your payments each month, the principal remaining (and consequently the interest on that) will change each month because the principal is getting smaller. However, the mortgage rate that decides the interest on the principal remains the same. Since you know the principal and the rate, budgeting for a fixed-rate mortgage is a lot easier for homeowners than it is for those who use an adjustable rate mortgage.
A big advantage of the fixed-rate mortgage is that as a borrower, you are not subject to unforeseen and potentially large increases in the monthly payment like you are with an adjustable rate. With a fixed-rate, you know your mortgage rate is going to be the same over the life of the loan but it does not mean your rate will be the same no matter what kind of mortgage you take; the longer the life of the loan, the larger the rate. The longer the loan, the more interest you pay.
Overall, fixed rates are the easier mortgage to understand because they are relatively straightforward; as far as they go from lender to lender or broker to broker, they are generally along the same lines.
Adjustable Rate Mortgage
With an ARM, your mortgage rate changes over time. Initially, you will see that the interest rate is set lower than the fixed-rate counterpart but as time goes on, it can increase to above or go lower depending on what the market states.
When you start, there is a period of time where the rate is going to remain unchanged; after that period is over, the rate you have will changed based on a chosen change frequency. How long can that fixed period be? It depends, it can be from a month all the way to ten years; the smaller the adjustment period, the smaller the initial rate.
So whatever kind of loan you want, the ultimate factor that decides which one is better is which one will work best for you. Look to see which one fits better with your financial situation and what you are more comfortable.
The process of obtaining a mortgage or refinancing a mortgage is your decision. You can make great choices or bad ones. You just have to find the right financial services company to help you along.
There are two very common forms of mortgages in the world and they both have their pros and cons. So the question is: which one is better? What are these pros and cons?
Fixed Rate Mortgage
A fixed-rate is perhaps the most common form of mortgage between these two; however, there are still questions that surround it lime what it is and what are characteristics of it?
A fixed-rate mortgage is a mortgage that has one mortgage rate that does not change throughout the life of the mortgage; hence, the name fixed-rate. The rate is fixed where it is from the start.
As the life of the loan shortens and you make your payments each month, the principal remaining (and consequently the interest on that) will change each month because the principal is getting smaller. However, the mortgage rate that decides the interest on the principal remains the same. Since you know the principal and the rate, budgeting for a fixed-rate mortgage is a lot easier for homeowners than it is for those who use an adjustable rate mortgage.
A big advantage of the fixed-rate mortgage is that as a borrower, you are not subject to unforeseen and potentially large increases in the monthly payment like you are with an adjustable rate. With a fixed-rate, you know your mortgage rate is going to be the same over the life of the loan but it does not mean your rate will be the same no matter what kind of mortgage you take; the longer the life of the loan, the larger the rate. The longer the loan, the more interest you pay.
Overall, fixed rates are the easier mortgage to understand because they are relatively straightforward; as far as they go from lender to lender or broker to broker, they are generally along the same lines.
Adjustable Rate Mortgage
With an ARM, your mortgage rate changes over time. Initially, you will see that the interest rate is set lower than the fixed-rate counterpart but as time goes on, it can increase to above or go lower depending on what the market states.
When you start, there is a period of time where the rate is going to remain unchanged; after that period is over, the rate you have will changed based on a chosen change frequency. How long can that fixed period be? It depends, it can be from a month all the way to ten years; the smaller the adjustment period, the smaller the initial rate.
So whatever kind of loan you want, the ultimate factor that decides which one is better is which one will work best for you. Look to see which one fits better with your financial situation and what you are more comfortable.
The process of obtaining a mortgage or refinancing a mortgage is your decision. You can make great choices or bad ones. You just have to find the right financial services company to help you along.
