Everyone wants to have a home of their own. Buying a home should be done at the right time. It’s a huge financial investment and probably the biggest one you’ll ever make. Thus, if you are already sure about buying a home, you should take your time and get to know your mortgage options. You want to get the perfect one depending on your needs. One of the most important things you have to do is choose between a fixed and adjustable rate mortgage.
Pros and cons of fixed-rate mortgages
In a fixed rate mortgage, rates remain the same. This means that you’ll be paying the same amount for the life of the loan. You can make a financial plan beforehand and ensure that you always have sufficient funds for the loan. You don’t have to worry about inflation. Because of the stable rate, it is easier to create a budget. A fixed-rate mortgage is ideal for people who are first-time home buyers.
On the other hand, a fixed-rate mortgage comes with a higher initial interest rate than an adjustable-rate loan. It’s one way for the financial institution to ensure that they won’t lose out. There’s also a chance that a mortgage holder will need to refinance so they can make the most out of failing rates. This means spending more in closing costs and spending time preparing necessary paperwork.
Pros and cons of adjustable-rate mortgages (ARMs)
Initial interest rates and payments required are lower. This means that a borrower can take advantage of an ARM without the need for refinancing. ARMs are perfect for buyers who plan to move from one home to another frequently. It also allows borrowers to buy bigger homes because the lower payments usually qualify them for larger houses.
However, payments and rates can significantly increase as time passes by. You’ll easily be confused or even trapped by some mortgage companies especially that ARMs are quite hard to understand.
Which one do you need?
Before you decide, you have to ask yourself this question. How long do you intend to stay in the house? If you plan to live in the house for a couple of years only, it’s best to go with an ARM. Your interest and payment will be low. Also, you don’t have to deal with significant rate adjustments because you’ll already be moving to a new place even before adjustments start to affect payments and rates.
When it comes to buying a home, it’s very important for you to know your mortgage options. Bear in mind that it involves a lot of money, and you don’t want to end up with a lot of financial worries just because you can’t pay settle the payments. What you want is a home that is comfortable not only for you and your family, but also for your pocket.