by Amar REALTOR® | February 9, 2022 11:43 am
As you prepare to purchase a home, shopping around for the best mortgage is one of the most important parts of the process.
If you decide whether to choose an adjustable or a fixed-rate mortgage, here are some things to remember.
An adjustable-rate mortgage (ARM) has a variable interest rate, meaning the interest rate you have when you close on your home will change over the life of the loan. The initial interest rate will be set below the market rate and rise over time.
The rate will remain fixed for some time before it rises, and this period will vary depending on the loan, anywhere from one month to 10 years. In some cases, an ARM will work in your favor, but there are some terms you need to be aware of to be fully informed before selecting an adjustable rate mortgage or fixed rate mortgage, including:
The obvious benefit of an ARM is the potential savings. Suppose you can secure an interest rate far lower than the market rate. In that case, you can save thousands a year on your mortgage payments and dedicate a higher payment ratio to the loan’s principal.
The downside of having an ARM is that you may end up paying a higher interest rate than you can afford or even higher than you need to. If you cannot refinance out of an ARM with a high-interest rate, you may be stuck with a payment you regret.
A fixed-rate mortgage is a traditional home loan, where the interest rate set at closing remains through the 15 or 30-year life of the loan. While the ratio of your payment toward interest or principal will vary monthly based on your amortization schedule, your monthly payment will remain consistent.
A fixed-rate mortgage comes with predictability, which equals peace of mind for many borrowers. If you prefer a contract that guarantees your mortgage terms for the next 15 or 30 years, then a fixed-rate mortgage is your obvious choice.
Refinancing to secure lower interest rates in the future may be an option to adjust interest rates on your timeline as you see the market changing favorably.
A fixed-rate mortgage’s most significant downside has a higher interest rate from the beginning. In most cases, the starting interest rate of an ARM will be lower than your fixed rate.
There are benefits and drawbacks to every mortgage product available, which is why it’s important to be informed and to shop around before selecting your mortgage. Getting pre-approval from multiple lenders and comparing term sheets is the best way to decide between an adjustable-rate mortgage and a fixed-rate mortgage. Remember that refinancing is often an option if the loan terms you selected no longer work for you, provided your credit score, income, and debt-to-income ratio will still qualify you.
To learn more details, let’s talk with Amar REALTOR®.
Let’s schedule a meeting with Amar REALTOR to review all your Real Estate objectives at a time that works for you.
Please Click the link below to schedule a time on my online calendar!
https://www.amarrealtor.com/meetingwithamarrealtor/
Contact Amar REALTOR® today for more information about Buying/Selling a Home in the Bay Area!
Amar REALTOR® offers expert real estate services with proven results in Bay Area Housing Market, including Homes for sale in Santa Clara County, San Mateo County, Contra Costa County, and Alameda County.
What is the San Francisco Real Estate Market Doing in 2022?
5 Things to Know About Bay-Area ADUs
What You Should Know About CA SB-9
How the Federal Reserve Affects Mortgage Rates
Should You Choose an Adjustable Rate or a Fixed Mortgage?
Source URL: https://www.amarrealtor.com/real-estate-news/mortgage-adjustable-fixed-rate/
Copyright ©2024 Amar REALTOR® | Bay Area Top Best Realtors | South Bay | East Bay | Peninsula unless otherwise noted.