For a first-time homebuyer, all the talk surrounding the type of mortgage can be intimidating. After all, a mortgage is not like any other loan, as it may be the biggest amount of money you will ever have to borrow and pay back.
Most people become rather confused from the get-go when discussing whether they would prefer a fixed-rate or an adjustable-rate mortgage (commonly called ARM). Here are the basic differences between the two, and a few ideas on who may benefit from which type of loan.
ARM vs. fixed-rate
With a fixed-rate mortgage, the interest you have to pay does not change throughout the life of the loan. An adjustable-rate mortgage, on the other hand, features an interest rate that changes over time. The interest after the introductory rate may go up or down at any point.
Who should get a fixed-rate loan?
You don’t have to worry about inflation if you’re paying a fixed-rate mortgage, as your interest rates are never going to change, whatever the condition of the market. This is the perfect mortgage if you’re the type that doesn’t like surprises when paying your bills, and that loves budgeting.
As long as you have the money for the house you want (fixed rates are typically pricier than the initial cost of an ARM), you can save yourself from worrying about the interest on your next payment. If at some point rates begin to fall and you don’t want to keep paying a high interest, you may choose to refinance in Tempe or wherever you’re located by looking for the best refinancing offers in your area.
A fixed-rate loan is popular among younger or first-time buyers because of the
Who should get an ARM?
An ARM typically attracts new home buyers because of the lower initial costs. If you want to buy a bigger house, but a fixed-rate loan for it is expensive, you can negotiate an ARM. While paying back the mortgage, if rates fall, you can benefit from lower payments.
Many states provide a ceiling for how high your interest rates can get. There are also areas where there are limits to how low your interests can be.
To understand more about these two loan options, talk to your realtor and do more research. Many online resources are covering this topic.