If you are planning on getting a mortgage, then you have likely heard of your two main options: adjustable-rate mortgages and fixed-rate mortgages. Each has their own benefits and drawbacks, so it can be a bit difficult to determine which is right for your situation. This becomes even more complicated when you consider just how volatile the economy can be. To help you figure out which option is best for you, here is comparison for beginners:
What is an adjustable-rate mortgage?
As the name would suggest, these mortgages can change as time goes on. In some cases this could be good, but the rates will almost always increase, which ultimately means that you will need to pay more money. However, that is almost always accompanied by a low upfront rate, which means that your short-term costs will be extremely low.
What is a fixed-rate mortgage?
As you might expect, these loans are the opposite, with a rate that does not really change over time. If you are paying 4% at the beginning, you will likely be paying 4% in several years. This is often a worse choice in the beginning, but can lead to much greater security and lower costs towards the end of the repayment.
Why get an adjustable-rate mortgage?
The most obvious reason to go with an ARM is to save money in the short term. However, this isn't always as silly of an idea as you might think. While you shouldn't usually prioritize short-term savings over larger potential long-term savings, there are cases where you might not be around for the alleged long-term savings.
For example, if you plan on only living in your home for a few years before moving, then you could potentially leave before the ARM actually increased in price. Therefore, you would get all the benefits of the savings and none of the backlash of the increased rates later.
There is also the possibiltiy that rates could simply stay now and not change. While this is certainly not a possibility that you should rely on, your rates might increase very slowly and you could potentially end up paying less in a full ARM than you might pay in a full FRM
Why get a fixed-rate mortgage?
In most cases, an ARM will cost more in the long run than a FRM. If you plan on staying in your home for a while, then an FRM is probably going to be a lot cheaper. On top of that, you might just prefer the security of an FRM, which does not put you at the mercy of the lender. You know how much you need to pay now and you have a pretty good idea of what you will be paying in a few years, so it will be much easier to plan out your finances.
To learn more, contact a PC like Byron Huffman, PC.