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Q: Hi Cassandra…I’m in the market for a mortgage loan and I’ve been exploring my options. Should I finance my new home purchase with a fixed-rate mortgage or an adjustable-rate mortgage?
A: For most people, buying a home is the most significant investment they’ll ever make in their lifetime. It’s a complex process involving several steps, like choosing the type of mortgage for financing the purchase. Two common types of mortgages are fixed-rate mortgages (FRMs) and adjustable-rate mortgages (ARMs). Let’s explore the differences between the two so you can make an informed decision when choosing the mortgage option that best fits your goals and financial picture.
What is a fixed-rate mortgage?
A fixed-rate mortgage is one where the interest rate remains constant throughout the life of the loan. This means the borrower’s monthly mortgage payments also remain unchanged, even if the market interest rates change. FRMs are usually available in 15- and 30-year terms, but 10- and 20-year terms are somewhat common as well.
FRMs are suitable for borrowers who plan to stay in their homes for a long time and want to avoid risking the possibility of rising interest rates.
What are the pros and cons of fixed-rate mortgages?
Fixed Rate Mortgages have several advantages, including:
However, FRMs also have disadvantages, including:
What is an adjustable-rate mortgage?
An adjustable rate mortgage is a type of mortgage in which the interest rate fluctuates periodically based on an index, such as the prime rate or the Treasury bill rate. This means the borrower’s monthly mortgage payments can increase or decrease over time, depending on changes in market interest rates.
Adjustable Rate Mortgages tend to have lower interest rates than Fixed Rate Mortgages, making them an attractive option for homebuyers who want to save money on interest payments. They can also be a great choice for borrowers who plat to sell their homes or refinance their mortgages before the interest rates rise significantly.
What are the pros and cons of adjustable-rate mortgages?
ARMs have several advantages, including:
However, ARMs also have several possible disadvantages, including:
How do I choose the mortgage that’s right for me?
When choosing a mortgage, be sure to consider the following factors to help you determine which mortgage type is best for you:
Be sure to consider each of these factors carefully, and should you have additional questions please contact me at 216-478-0089.
Mortgage Loan Officer, AVPOhio Catholic Federal Credit UnionEmail: firstname.lastname@example.orgCall: 216.478.0089
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