Fixed or Adjustable Rate: Which is Right for You?

by CCB Today | Thursday, Sep 8, 2016 | 316 views

Type of MortgageWhen it comes to home loan and interest rates, you can choose either fixed-rate or adjustable rate mortgage. The former has an interest rate that never changes, while the latter changes its interest rate at specific intervals. This right choice depends on your own preferences, income, goals, and needs.

Fixed-Rate Mortgage

In a fixed-rate mortgage, the rate is set over the life of the loan. It has a fixed and predictable payment, protecting homeowners from the sudden increase in monthly loan payments in case the interest rates rise. When you choose this mortgage, you will have a clear picture of how the loan will affect your income and financial situation.

Primary Residential Mortgage, Inc. noted that this could be a good choice if you have a stable source of income and if you plan to keep the house for the long-term. It may also be ideal for some first-time homebuyers mainly because of the loan’s simplicity and payment predictability. The only downside is when the interest rates drop, your rate and payment will not change.

Adjustable-Rate Mortgage (ARM)

With ARM, the interest rates may increase or decrease. Most loans will start a lower rate, which may stay the same for months or years. Once the introductory is over, the interest rate will change and this will affect your monthly payment. When the index of interest rate goes up, the same is true for your payments. When the rates decline, your payment may go down. Decreased payments, however, is not true for all ARMs, as some limit the adjustment amount.

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This type of mortgage may appeal to younger ones or mobile buyers. ARM could also be a good choice if you have a job that could require you to move to another city within a few years. An adjustable rate also makes sense if you want to keep your long-term options open. Just makes sure that you know how your loan adjusts and how the interest rate and payment could increase with each adjustment.

Talk to a lender to help you choose the right loan. Make sure consider the pros and cons of each loan to know which fits your current situation. Don’t forget to create a budget while taking your income, expenses, and debt into account.

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