Adjustable Mortgage Rate vs Fixed Mortgaged Rate
All home buyers are faced with a decision when signing up for a mortgage. Do you want a fixed-rate mortgage or an adjustable-rate mortgage? The difference in the two choices could lead to thousands of dollars saved or lost. It could be the difference between living comfortably and foreclosing on your home. Before you make the choice you should be as informed as possible. We are going to explain what both sides mean and their pros and cons.
A fixed-rate mortgage is when your interest rate is set and it doesn’t fluctuate. It doesn’t change with the market or for inflation. It will be the same interest rate for every single month until the mortgage is paid off.
More people end up deciding to go with a fixed-rate mortgage because it is easier to comprehend. In the long run it is easier to budget for because you can count on the same amount to pay for month after month. There is a sense of security because you know what you are going to get in the bill at the end of the month. This protects the homeowner in cases of unexpected increases in the market.
Since the fixed-rate mortgages protect the borrower, the interest rates are set higher than the actual market interest rates at the time of closing. Also if the interest rates are high at the time, you will be stuck with high interest rates all the way to the last payment.
An adjustable-rate mortgage is when the interest rate is susceptible to change over a period of time. It is based on an economic index which means it repeatedly modifies to change rates. You set an adjustment period, which can be between one month and ten years. The first period will be a fixed rate of what your initial interest rate was set at. The shorter your adjustment period typically calls for lower interest rates.
Contradictory to fixed-rate mortgages, the initial interest rate is set from short term rates, which usually are lower. They are appealing because of the lower initial interest rates and also allow for greater loans.
The changing interest rate is unpredictable. During one period you may be comfortable with your money but the next period they may be foreclosing. To go through your entire adjustable-rate home payment without one overwhelming period, you will need a lot of luck.
There is a lot to think about when making this decision. When deciding to go with an adjustable-rate mortgage, make sure you have the money ready to pay for a much higher interest rate just in case it spikes up.
Whichever choice you make; life comes at you fast sometimes. Whether it is unexpected unemployment, medical expenses, or anything else that might set you back to where you can’t make your house payment, you will need an aggressive attorney for your foreclosure defense. We want you treated fairly and with the utmost respect. Don’t let the big banks scare you. You should not take out an adjustable rate mortgage without having an attorney read it. Many keep the current rate as a permanent floor, so, in reality, they are "increasable" not "adjustable". These rapacious mortgages touched off the subprime crisis.