Fixed Rate or Adjustable?
Fixed rate or adjustable rate mortgages are two choices of mortgage loans that most lenders will offer you. Deciding which loan makes the most sense for you, depends on your financial situation, how long you plan to live in the home, the current interest rates, and what risks you are willing to take.
Understanding the benefits as well as the risks of each loan will help you decide if a fixed rate or adjustable rate loan works best for you.
Fixed Rate Home Loan
A fixed rate home loan offers you monthly mortgage payments of principal and interest that never change for the life of your loan. A fixed rate home loan is very stable and that is the reason why it is the most popular way to finance a home today.
Fixed rate home loans are available as 30, 20, 15 and 10 year loans and they make sense if you answer yes to the following:
Plan to live in your home more than 5 years
Want the stability of a fixed monthly mortgage payment
Don't want to risk future monthly mortgage payment increases
Some fixed rate home loans can be converted into biweekly mortgages which shortens the life of your loan. By paying your monthly mortgage payment every two weeks, you make one extra payment a year for a total of 26 payments. You pay less interest on your loan and build equity faster.
It makes sense to finance a home with a fixed rate home loan only if you plan to live in your home for 5 years or longer. That is because in the early amortization period of a fixed rate home loan, the biggest percentage of your monthly mortgage payment is applied toward interest. Only a small amount is applied toward the principal but that will gradually reverse itself as the loan ages.
Adjustable Rate Loans
Adjustable rate loans make sense if you are going to live in your home less than five years. Adjustable rate loans can be easier to qualify for and that may make it easier for you to initially get into a home. You can always refinance to a fixed rate home loan later if your future income is going to increase.
Adjustable rate loans start at an introductory rate which is a lower interest rate than a fixed rate home loan. The low introductory rate makes your monthly mortgage payment lower than a fixed rate home loan.
But these loans carry a little more risk because the trade-off for lower payments of an adjustable rate loan is the uncertainty of the amount of your monthly mortgage payment. However, most adjustable rate loans have cap protections so your monthly mortgage payment doesn't go up too quickly.
Adjustable rate loans make sense if you answer yes to the following:
Plan to move before 5 years
Can afford a higher monthly mortgage payment if interest rates go up
You believe that mortgage interest rates will remain the same or decline in the future
Everyone has different circumstances and only you can decide if the risks or advantages are in your best interests. These tips should help you decide if a fixed rate home loan or adjustable rate loan will work best for you.
Copyright © 2005 Credit Repair Facts.com All Rights Reserved.
This article is supplied by Credit Repair Facts.com where you will find credit information, debt elimination programs and informative facts that give you the knowledge to correct your own credit and credit report. For more credit related articles like these go to: Credit Related Articles
Understanding the benefits as well as the risks of each loan will help you decide if a fixed rate or adjustable rate loan works best for you.
Fixed Rate Home Loan
A fixed rate home loan offers you monthly mortgage payments of principal and interest that never change for the life of your loan. A fixed rate home loan is very stable and that is the reason why it is the most popular way to finance a home today.
Fixed rate home loans are available as 30, 20, 15 and 10 year loans and they make sense if you answer yes to the following:
Some fixed rate home loans can be converted into biweekly mortgages which shortens the life of your loan. By paying your monthly mortgage payment every two weeks, you make one extra payment a year for a total of 26 payments. You pay less interest on your loan and build equity faster.
It makes sense to finance a home with a fixed rate home loan only if you plan to live in your home for 5 years or longer. That is because in the early amortization period of a fixed rate home loan, the biggest percentage of your monthly mortgage payment is applied toward interest. Only a small amount is applied toward the principal but that will gradually reverse itself as the loan ages.
Adjustable Rate Loans
Adjustable rate loans make sense if you are going to live in your home less than five years. Adjustable rate loans can be easier to qualify for and that may make it easier for you to initially get into a home. You can always refinance to a fixed rate home loan later if your future income is going to increase.
Adjustable rate loans start at an introductory rate which is a lower interest rate than a fixed rate home loan. The low introductory rate makes your monthly mortgage payment lower than a fixed rate home loan.
But these loans carry a little more risk because the trade-off for lower payments of an adjustable rate loan is the uncertainty of the amount of your monthly mortgage payment. However, most adjustable rate loans have cap protections so your monthly mortgage payment doesn't go up too quickly.
Adjustable rate loans make sense if you answer yes to the following:
Everyone has different circumstances and only you can decide if the risks or advantages are in your best interests. These tips should help you decide if a fixed rate home loan or adjustable rate loan will work best for you.
Copyright © 2005 Credit Repair Facts.com All Rights Reserved.
This article is supplied by Credit Repair Facts.com where you will find credit information, debt elimination programs and informative facts that give you the knowledge to correct your own credit and credit report. For more credit related articles like these go to: Credit Related Articles
posted by Gary at 10:07 PM
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