Should you get an adjustable-rate mortgage or a fixed-rate mortgage? What’s the difference and how will it affect you?
When it comes to mortgages, there are two primary sorts that most people choose when financing their homes: fixed-rate mortgages and adjustable-rate mortgages. While many varieties branch out from these two categories, the first step one must take is to decide with which branch they will go. If you’re unsure of which one is best for you, we hope the following will help!
Adjustable-Rate Mortgages
The interest rate for an adjustable-rate mortgage (ARM) varies over time. The initial interest rate on an ARM is set below the market rate on a comparable fixed-rate loan, and then, as time goes on, increases or decreases from there depending on the market. Note, it basically always increases. If the ARM is held long enough (i.e. should you decide to keep your home long-term), the interest rate will surpass the fixed-rate loan.
ARMs start out with a fixed interest rate in that stays constant and then adjusts at a pre-arranged chronicity. For example, if you’ve seen a 5/1 ARM, the rate will stay fixed for 5 years before it starts to adjust. The fixed rate for an ARM can last anywhere from 1 month to 10 years!
Fixed-Rate Mortgages
A fixed-rate mortgage (no acronym for this one), charges a set interest rate that does not change throughout the entirety of the life of the loan. Although the amount of principal and interest varies from month to month (because you’re paying off your loan so you’ll slowly pay less interest), the total payment stays constant.
This can come in handy when budgeting is of major importance to you and you don’t want to have to worry about any sudden increases in monthly mortgage payments.
There is no true winner between these two mortgage types. The one that you should go with is the one that best fits your financial and lifestyle needs. For all of your home loan needs throughout Solana Beach and San Diego County, as well as all of California, contact Elvin Wesley at Ranch & Coast Mortgage Group Inc. We have the experience needed to make sure you get the right mortgage.
