Fixed Rate Mortgage Loans - Understand the Pros and Cons of the Fixed Rate MortgageWritten by Carrie Reeder
There are many benefits and drawbacks to consider when deciding if a fixed rate mortgage is right for you. It is important to look at all options when it comes to something as important as getting a mortgage for your new home.There are a few benefits to fixed rate mortgages. One benefit is that rates and payments remain constant. There won’t be any surprises even if inflation surges out of control and mortgage rates head to 20%. This kind of stability makes budgeting easier. People can manage their money with more certainty because their housing expenses won’t change. Fixed rate mortgages are simple to understand making them appealing and good for first time buyers. Also longer term fixed rate mortgages are very affordable. There are also a few drawbacks to fixed rate mortgages. To take advantage of falling rates, mortgage holders would have to refinance. That can mean a few thousand dollars in closing costs, another trip to title company’s office and several hours spent digging up tax forms, bank statements etc. Fixed rate mortgages can be too expensive for some borrowers, especially in high rate environments, because there is no early on payment and rate break like there is with adjustable rate mortgages. Fixed rate mortgages are practically identical from lender to lender. While lenders keep many adjustable rate mortgages on their books, most financial institutions sell their fixed rate mortgages.
| | Adjustable Rate Mortgages - Understand the Benefits Compared to a Fixed Rate MortgageWritten by Carrie Reeder
Adjustable rate mortgages can be very tempting to home buyers, yet they carry a great deal of uncertainty. Fixed rate mortgages offer rate and payment security, but they are more expensive. It is important to weigh pros and cons of ARMs and fixed rate mortgages before you decide which is right for you.There are many benefits with an adjustable rate mortgage. One benefit is that they usually feature lower rates and payments early on in loan term. Lenders can use lower payment when qualifying borrowers, therefore borrowers can purchase larger homes than they could otherwise afford. ARM’s allow borrowers to take advantage of falling rates without refinancing. Instead of having to pay closing costs and fees, borrowers can just sit back and watch their rates fall without worrying about these extra costs. Adjustable rate mortgages can help borrowers save and invest more money. Someone who has a payment that is say $200 less with an ARM than with a fixed-rate mortgage for a couple of years can save that money and earn more off it in a higher yielding investment. This type of mortgage also offers a cheap way for borrowers who don’t plan on living in one place very long to buy a house. There are also a few drawbacks with Adjustable rate mortgages. One drawback is that rates and payments can rise significantly over loan period. For instance, a 6% ARM can end up at 11% in just three years if rates rise in overall economy. A borrower’s initial low rate will adjust to a level higher than going fixed rate level in almost every case because ARMs have initial fixed rates that are set artificially low. The first adjustment can be hard hitting because some annual caps don’t apply to initial change. Someone with an annual cap of 2% and a lifetime cap of 6% could potentially see rate shoot from 6% to 12% in 12 months after closing rates in economy skyrocket. Adjustable rate mortgages can be difficult to understand.
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