Everyone likes to have options, which is what you'll get when shopping for mortgages. One of those choices is deciding between a fixed- or adjustable-rate loan.
This doesn't necessarily mean you'll be able to select your own interest rate, but you do get to decide between a fixed-rate mortgage (FRM) and adjustable-rate mortgage (ARM). Each comes with different rules and advantages based on your needs as a homebuyer and future homeowner.
If you're into stability, FRMs are usually the way to go. These home loans get their name because the interest rate stays consistent throughout the repayment term, which is typically longer - 15 or 30 years - compared to ARMs. The interest rate is usually higher, as well.
Here are some reasons to get an FRM:
- You don't plan to move soon. Due to the longer term and consistent interest rate, FRMs are perfect for homebuyers who want to find a house they'll keep for years. If you're recently married and looking for a house to raise children, for instance, you probably want to stay in one place until you are old enough to retire and downsize after the kids move out.
- You want consistent payments. Real estate loans with fixed rates allow you to budget for your mortgage bills far in advanced. Whether you're one or 10 years into your repayment term, the bill will be the same - unless you refinance for a lower rate.
ARMs are best for individuals who like to shake things up a bit. They tend to have a lower initial interest rate, which adjusts after a certain period of time based on market conditions.
If you don't expect to stay in a house for a long time, you can get an ARM and move before the first adjustment. As a result, you get a lower interest rate for the time you're living in the home. However, consider the possibility that you may not want or be able to move once the initial adjustment is nigh. Be sure to plan ahead for the higher monthly payments in the event that you can't sell or decide to stick around.
For more information about smart ways to manage your finances, contact Landmark Bank.
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