Understanding the Differences Between a Fixed Rate and ARM Mortgage
If you are in the market to buy a new Rockland house, then you are also looking at the various mortgage options available to you. Most Rockland homebuyers do not have the cash on hand to buy the home outright, so a mortgage is needed to help you properly finance your home.
At this point, you might know that there are different types of mortgages available. You can opt for either a fixed-rate mortgage or an adjustable-rate mortgage (ARM). Each of these types has their pros and cons and one might be a better option for you than the other.
Since it can be difficult to choose which option will be the best for you, we will cover both of these mortgage types in the article below.
Adjustable-Rate Mortgage
An adjustable-rate mortgage, also known as a variable-rate mortgage or an ARM, begins at a fixed and predetermined interest rate when you first buy the Rockland home. This rate is likely to be significantly less than the rate you might receive with a fixed-rate mortgage. After this point, the interest rate will adjust according to how the market is performing.
Each ARM is different, but traditional points of interest rate adjustment occur at three, five, seven, or ten years after the initial mortgage has begun.
However, just because the interest rate will adjust depending upon how the market is presently performing at that time doesn’t mean your payments will increase. At the same time, it also does not guarantee that your payments will necessarily decrease either.
The fine print of your mortgage will outline this process further and will help with any questions you have. You will also want to contact your bank to gain a better understanding of this type of mortgage. Make sure you completely understand the ins and outs before making a decision.
Fixed-Rate Mortgage
Traditionally speaking, a fixed-rate mortgage is a little more simple. Your interest rate and payments will stay the same throughout the entire lifespan of your mortgage, no matter if your mortgage has been established for 15, 20, or 30 years.
However, you will be able to refinance your mortgage rate throughout your loan’s life. Doing so might help you to get a better rate if the market is performing in your favor.
Which is Best?
Both types of mortgages can be appealing to Rockland homebuyers. It really comes down to what your personal situation is.
One of the main keys to keep in mind is that adjustable-rate mortgages tend to be the most appealing for first-time homebuyers or “short-term” homebuyers. This is because you will be able to benefit from a lower interest rate and then be moving into your next home before rate resets.
ARM’s are also appealing for investors and buyers who have short-term goals in mind.
On the other hand, fixed-rate mortgages tend to be the most applicable and the most appealing for a Rockland homebuyer who has no plans of going anywhere. Having the consistency and stability baked into the price is worth the costs for some.
The bottom line is that your choice depends on your situation. Work to educate yourself on the choices available. Meet with lenders and shop around for the best deal. You are investing in your mortgage, so make sure it is the right investment.