Fixed Rate Mortgages vs Adjustable Rate Mortgages

There are various types of mortgage loans available in the market. It is always good to look around and understand the different types of mortgage loans and even discuss  them with mortgage experts to find which one fits you best. Mortgage loans can be basically categorized into two types, fixed rate and variable rate mortgages.

Fixed rate mortgages, as the name applies have fixed interest rates for the life of the loan. This means the principal and the interest payments are constant and stay the same for the loan period. Such types of loans are great for borrowers who plan to stay in a house for a longer term, 10 years or more. Also monthly mortgage payments can be considerably lower compared to other mortgages depending on the length of the loan. For instance, for a loan amount of $250,000, the monthly payment could be $1342 with a 30 year fixed rate mortgage with 5 % interest rate, whereas for the same amount of loan with a 15 year fixed rate mortgage with 4.5% interest rate the monthly payment could be $1912 saving $570 on a monthly basis. Also your interest rate is not affected if the interest rate increases.

Adjustable rate mortgages (ARMs) are mortgage loans which have adjustment periods that determines when and how often interest rates can change. There is an initial period during which the rates are fixed. After the completion of the specified period interest rates are adjusted based on different indices, commonly COFI and the LIBOR index. The initial interest rates on ARMs are considerably lower than fixed rate mortgage loans. ARMs are considered more risky than fixed rate mortgages because the interest rates may increase and thereby the monthly payments could change significantly. These types of mortgage loans are good for borrowers who plan to stay at a property only for a shorter period of time around 5 to 10 years or less. Also ARMs are suitable for those borrowers who believe their income will increase in the future so that they will be able to cover the increased monthly payments incase the rates go up. However all ARMs have lifetime rate caps which confines the amount the interest rate of the loan can rise over the span of the loan. Also some ARMs also have a periodic rate caps which limits the amount of rate increase for each adjustment.

If you are a borrower who plan to stay long term in your property and do not like any surprises with increases in your monthly payments and want to enjoy steady low monthly payments fixed rate mortgages are a good option for you. But if you are someone who plans to move or upgrade within a shorter period of time, adjustable rate mortgages could be a good option to lean on. It is always good to consult mortgage experts to find which mortgage option fits you best.

For a complete list of our mortgage rates and mortgage products check us out online or call 877-868-2503 to speak with a licensed mortgage professional today!