Fixed Rate Mortgages
A fixed rate mortgage offers a consistent interest rate and payment amount over the life of the loan. This can provide peace of mind and predictability, which can be especially important for those with a steady income. A fixed rate mortgage can also make budgeting easier, as your monthly payment will not change, regardless of fluctuations in interest rates.
However, the downside of a fixed rate mortgage is that you may end up paying more in interest over the life of the loan, as you are locked in to a set interest rate regardless of market conditions. If interest rates fall, you won’t be able to take advantage of the lower rates without refinancing. Additionally, fixed rate mortgages often have higher interest rates than adjustable rate mortgages, which can mean a higher monthly payment.
Adjustable Rate Mortgages
An adjustable rate mortgage (ARM) offers a lower initial interest rate that adjusts periodically based on market conditions. This can be beneficial if interest rates are expected to fall in the near future. With an ARM, you can take advantage of lower interest rates without having to refinance. Additionally, if you only plan to stay in the home for a few years, an ARM can be a good option, as you can take advantage of the lower initial interest rate without having to worry about the higher interest rates that may come later.
However, an ARM can also be risky, as your interest rate and monthly payment can increase significantly over time, especially if interest rates rise. This can make budgeting difficult, as your monthly payment will not be consistent. Additionally, if you plan to stay in the home for a long period of time, an ARM may not be the best option, as the interest rate and monthly payment may eventually become too high.