When it comes to getting a mortgage, one of the most important decisions you have to make is choosing between a fixed-rate and adjustable-rate mortgage. It usually comes down to which you are comfortable with. You may choose a fixed-rate loan if you are at ease with stable payments or an adjustable-rate if you don’t mind the risks (and its potential rewards).
- Fixed-rate loans have rates and payments that don’t change throughout the life of the mortgage. This provides the security of locking the rates for your chosen loan term. This only means that you’ll know the amount of principal and interest you’ll be paying every month, which makes budgeting a lot easier. This stability comes with a downside of not being able to benefit from lower interest rates
- Adjustable-rate mortgages (ARMs) have rates that change from time to time. They have an initial fixed-rate period (where rates don’t fluctuate), which will then change after that period. With ARMs, there is the risk of rate (and payment) increases. If the interest rates go down, however, you can take advantage of the lower monthly payments.
Your Plans in Keeping the House
St Louis mortgage companies note that while your decision should be based on which you are most comfortable with, you also need to consider how long you plan to stay in the house. A fixed-rate mortgage can serve your interest better if you plan to keep the home for the long term. With this loan, you won’t have to face substantial payment changes in the future.
If you, however, plan to move somewhere else in the future or sell the house after a few years, an ARM is a good choice. Some also choose an ARM, as it has an initial lower monthly payment, which allows them to have some extra money in paying for other expenses and making investments.
If you’re still confused with one to choose, it is best to learn more about their pros and cons. You should also talk to a reliable lender to educate your on which one best fits your situation.