When it comes time to choose a new mortgage, you are of mortgages, which falls into one of two categories – fixed rate mortgages (FRM) and adjustable-rate mortgages (ARM) the election. The main difference between these two types of mortgages, is that the interest rate on an ARM is tied to an index that will fluctuate with market conditions, while the rate of the loan is for a FRM the same for the entire term. Let’s take a brief look at the pros and cons of a fixed rate mortgage.
Pros
Your payments will remain stable over the life of your loan. While the major financial indices will continue to fluctuate from month to month, your rate and payment will be locked in. As long as you pay your loan on time to stay still, change your mortgage payment will not.
No surprises. As the interest rate on your FRM does not, your payment will be constant. You will be protected from the potential increase in mortgage payments that they can with an ARM from month to month face.
Because you know what the payment is on your mortgage will know for the life of your loan, it is easier to budget the payments for a fixed interest rate.
Cons
The payments on an FRM are usually higher than the payments on an arm. This is particularly true in the first few years as many adjustable rate mortgages get teaser rates that are significantly lower than the prices are fully indexed.
The higher payments that come with a fixed rate mortgage is typically the borrower to show more income than the payments on an adjustable rate mortgage.
If interest rates go down, you must refinance your FRM to enjoy the benefits of these lower rates.
Fixed rate loans generally have a higher interest rate than variable rate mortgages. To lose yourself from future interest income if interest rates increase to protect, mortgage lock in profits in the future by applying higher rates on fixed products.
If you plan on refinancing or selling your house within the next 5-7 years, you will pay for long-term safety of a FRM, if one arm was able to provided you have a lower and lower payments, over the same period.
You should always consult with a mortgage professional if they try to talk to determine the best mortgage for your situation. A mortgage professional can help you the advantages and disadvantages of each type of mortgage and help you weigh them against your specific needs. While on the surface, a fixed rate might like the best option seems, often an adjustable rate mortgage allows you, your needs and help you achieve your financial goals faster than if you had devoted more of your income at a fixed interest rate mortgage.