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Mortgage Rates: Fixed-Rate or Adjustable?

Monday, August 15, 2016   /   by Teresa Dipeso

Mortgage Rates: Fixed-Rate or Adjustable?

If you're looking to buy a home, chances are you'll be shopping for a mortgage as well as the property of your dreams.  While there are many aspects of mortgages that need to be carefully considered, one of the biggest and most common is whether to choose an adjustable rate mortgage (ARM) or a fixed-rate.  They both have their pros and cons, let's take a look at some of them.

Fixed-rate mortgage:  The fixed-rate is just as it sounds, a rate that you are locked into over the life of the loan.  

---Some of the pros are: Rates and payments remain constant, allows you to budget and plan with confidence, it's more straightforward than an ARM, it gives you a relieving sense of security (which means better sleep!).  

---Here are the cons:  You won't be able to take advantage of when interest rates fall without refinancing, and you may not qualify for as much house as you might like, since fixed-rates are typically higher than ARMs.  

Adjustable rate mortgages (ARMs):  They are also as they sound, rates that go up or down over the life of the loan.  

---Some pros:  There are lower rates and payments early in the loan, you have a better chance to qualify for a pricier property (since the lender will use the lower payment when calculating your lendable amount), you'll automatically take advantage of when interest rates go down without having to refinance.  

---But, here are the cons:  Rates and payments can rise substantially, you'll need to understand the details of your loan (such as caps, margins and adjustment indexes), if you have a specific type of ARM called a negative amortization loan (NegAm) then you may owe more than you did at closing since payments can be so low that they only cover a part of the interest do and the rest is rolled into the principal.  

So, which is the one for you?  It really depends on your financial situation and personality!  Each carries its own risks and rewards.  Talk to myself or our lending specialist, Vicki Kammer of Mortgage Network for free, friendly advice.  


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Teresa M DiPeso & The DiPeso Group Jersey Shore Real Estate Experts
Teresa M. DiPeso
Long & Foster
Avalon/Stone Harbor/Cape May/Sea Isle/Wildwoods, NJ 08202
609-780-1434

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The data relating to real estate for sale on this web site comes in part from the Broker Reciprocity program of the South Jersey Shore Regional MLS. Real estate listings held by brokerage are marked with the Broker Reciprocity logo or the Broker Reciprocity thumbnail logo (a little black house) and detailed information about them includes the name of the listing brokers.
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