Should You Get an Adjustable Rate or Fixed Rate Mortgage?
Adjustable rate and fixed rate mortgages are very different from one another. When the time comes to take out a mortgage, buyers will have to decide for themselves what makes the most sense for their needs. Knowing the difference between these two types of mortgages can help buyers make their decision.
What's the Difference?
A fixed rate mortgage is a mortgage that has one rate over the life of the loan. Payments are always the same, no matter how long the loan lasts. An adjustable rate mortgage is a mortgage that starts with a low interest rate that changes after a certain period. The adjustable rate mortgage can go up or down according to an interest rate index, so that homeowners are unable to predict exactly how their mortgage will change over time.
What are the Pros and Cons?
Buyers who are drawn to fixed rate mortgages are usually attracted to the predictability of the payments. Fixed rate mortgages make budgeting and planning easy over the long term. People who live on a fixed income especially appreciate fixed rate mortgages because they know exactly how much they can expect to pay for their home, into the distant future.
Adjustable rate mortgages have their own advantages. Usually adjustable rate mortgages start off with a lower interest rate than a fixed rate mortgage. For a home buyer who expects to grow their income, either by getting a new job or by getting a raise, the adjustable rate mortgage is a way to qualify and pay for a home by making very affordable payments.
However, buyers who are attracted to adjustable rate mortgages should be cautious when choosing a loan. Some adjustable rate mortgages are a better deal than others. Buyers should be aware of the terms, how much the payment can go up in a certain period, whether the payment can go down and other factors. Buyers who educate themselves about the home purchase process and who read the fine print can avoid making a decision that will later cause hardship.
Which One is Right for You?
There is no right or wrong answer when it comes to signing up for a mortgage. Every home buyer is different and has different needs depending upon their finances. The best way to ensure that the buyer gets a mortgage that will work for them is to work with a trustworthy lender. Most lenders will help buyers by answering their questions and helping them to fully understand the terms of their loan.
Buyers who remain undecided after talking to a lender can talk to a financial advisor. A good financial advisor will also offer helpful advice that can help the buyer make good decisions based on their personal financial information.
Work With a Good Lender and Real Estate Professional
If you're a Memphis new home buyer just getting started with your search, contact a real estate professional and a reputable lender in your area. The lender can answer your questions about getting a loan and can help you start the qualification process.
A good real estate professional can help you look through properties, identify homes in your price range, and take the next step when it's time to make an offer. For more information, start calling real estate professionals today.