Real Estate. I break down real estate concepts for first-time homebuyers.
When you’re applying for a mortgage, your interest rate can have a huge effect on your monthly payment. With home loans, there are two different ways that your interest rate can be calculated. You can either get a fixed-rate loan, where the interest rate will stay the same for the entire length of the loan, or you can get an adjustable-rate mortgage (ARM), which will vary according to market conditions.
If you’re having trouble deciding which type of loan is right for you, I’ve laid out three questions that will help make your decision easier. Read on below to learn what you need to know about the differences between these two loan types.
How long do you plan to stay in the home?
Part of the draw behind adjustable-rate loans is that they come with a low introductory interest rate period. During this period, which typically lasts anywhere from three to seven years, the interest rates that these loans offer is often lower than what you’ll find with a fixed-rate loan.
If you’re not planning on staying in your home that long, especially if you intend to move before the introductory rate period is up, it may be worth looking into an ARM. In that case, you could capitalize on the low-interest rate, which may give you a more manageable monthly payment or even help you qualify for a larger loan than you might otherwise.
On the other hand, if you intend to stay put for a while, a fixed-rate loan might be a better bet. After the introductory rate period is over, the interest rate on an adjustable-rate mortgage is subject to market fluctuations, meaning that your monthly payment would rise if interest rates go up. Given enough time, that’s likely to happen so many homeowners who intend to put down roots often prefer to opt for the stability and security of a fixed-rate loan.
Read the Original Article Here: 3 Questions To Ask If You’re Deciding Between An Adjustable-Rate Or Fixed-Rate Mortgage