An insight Into The Fixed Rate vs Adjustable Rate Mortgage Dilemma
There’s nothing more perplexing in the entire home buying process than having to decide on what type of loan rates you want. Without any insight and without understanding how the market is trending, choosing a fixed rate loan or variable rate mortgage can be akin to a crapshoot. There are however factors that should help sway you to decide which is best in the long term and as in the short term as well. And short term is the approach you should take most of the time if you are not entirely comfortable with the current interest rates that are offered. We may be getting a little ahead of ourselves, so we’ll first break down exactly what fixed rate mortgages and adjustable rate mortgage are.
Fixed rate mortgages are loans that have set interest rates. This means that your monthly mortgage payments will be the same throughout the duration of your mortgage. The opposite could be said for adjustable rate mortgages because they have a tendency to fluctuate. This fluctuation can be to your benefit or it can cost extra money each month that interest rates are higher than your first mortgage payment. So which type of loan is best for you? This is a question that we all wish we had a crystal ball to give us the answer. The factors are so many and each case would have to be analyzed carefully. But there are some basic rules one should follow and they begin with the present rates and where they stand in comparison to rates over the last decade or so. An interest rate that is below 5.5% can be very favorable if the interests rates over the past 15 years have been hovering over 8%. Such an interest rate might go even lower but that would be speculation, this is an example of a perfect time to take out a fixed rate mortgage.
If however interest rates are at 7% and the average of the last 15 years has been 8% then careful thought needs to be exercised. The first thing to find out is how are interest rates trending the past year and past several years. If they have been fluctuating up and down, below 7% then this is an indication to refrain from a fixed mortgage and contemplate getting an adjustable rate mortgage instead. There are other factors to think about and they begin by trying to understand where the real estate market is heading and where the economy in general is headed as well. Keep a tab on the property or the area in which your property is located. It safe to say that with demand everything seems to increase and that includes interest rates. Ultimately you will have to decide, but if you ever feel uncomfortable with the interest rates then stay away from fixed mortgages. Instead go for a 5 year loan and see how things develop with a little insight you might have an idea that rates will trend downwards and you can take advantage of them when your short term loan is done.