Which Mortgage Is Best For You?

Mortgages. They can often be some black hole – a complicated web of numbers and rules that either don’t make sense, or aren’t transparent enough. But now that ends. To help you find the right agent for your needs, and also to make the entire home buying-process easier – including your mortgage questions check out the below checklist.

There are two main categories of mortgages: adjustable rate mortgages (ARMs) and fixed rate. An ARM mortgage sometimes requires you to pay back all the interest on your loan first, rather than paying down the principal. And, just as it sounds, the “adjustable” in the adjustable rate mortgages means that your rate is subject to fluctuate up and down with the movement of the Federal Reserve’s interest rates. ARMs do typically come with an initial fixed rate period (for a 5/1 ARM, it’s a 5 year fixed period), however once that ends, your rate can move up or down.

A fixed rate mortgage, however, maintains the same rate (and payment) for the life of your loan. You will also be working towards paying off both the interest and principal of your loan; with a fixed-rate, you’re working towards owning your home free and clear.

If you’re trying to decide whether an adjustable rate mortgage or a fixed rate loan is the right choice for you, it helps to assess what your plans are for the next five years.

Why I Would Get an ARM?

• This is just a starter home, I plan on moving in a couple years
• My job involves potential transfers, I probably won’t be in this home more than five years
• I don’t mind unpredictability as a tradeoff for short term savings / lower payments
• I believe rates will drop in the next five years

Why I Would Get A Fixed Rate?

• This is my “forever” home
• I may not be in this home forever, but certainly for the next 10+ years
• I believe interest rates are only going to rise & I don’t like risk and uncertainty
• I need to know what my exact home payment will be every month
• I would like to pay off my mortgage, relatively soon

Mortgage rates have been at historic lows. An effort to carefully move the country out of its financial doldrums has meant that borrowing money is cheap. That’s good news for you as a potential home-buyer. But before you buy, consider what your goals are for the next period of your life.