Mortgagestages
Fixed-Rate Mortgages
A fixed-rate mortgage means the interest rate and principal payments remain the same for the entire life of the loan. (Taxes, of course, may change.)
- Advantages: Consistent principal and interest payments make this loan stable your rate won’t change, so you don’t need to worry about market fluctuations. A good choice if you’re likely to stay in this house for a long time.
- Disadvantages: May cost you more — these loans are usually priced higher than an adjustable-rate mortgage. Keep in mind that, on average, most people move or refinance within seven years. If rates in the current market are high, you’re likely to get a better price with an adjustable-rate loan.
Adjustable-Rate Mortgages
An adjustable-rate mortgage (ARM) means that the interest rate changes over the life of the loan — according to the terms specified in advance.
With ARMs:
The initial interest rate is usually lower than with a fixed-rate mortgage.
The monthly repayment would also be lower.
The interest rate may be adjusted (up or down) at predetermined times.
The monthly payment will then increase or decrease.
Most ARM programs do offer "rate cap" protection, which limits the amount the rate can be increased, both each year and over the life of the loan. |
All ARMs are amortized over 30 years.
- Advantages: ARMs are usually priced lower than fixed-rate mortgages so you can increase your buying power and lower your initial monthly payments. If interest rates go down, you’ll enjoy lower payments. Usually an ARM is the best choice for homeowners who plan to relocate (for example, with their company or the military), or for those who are purchasing their first home and plan to be in the property only for three to five years. Remember that, on average, most people move or refinance within seven years.
- Disadvantages: Your monthly payments can increase if interest rates go up. Keep in mind that ARMs are best for homeowners who aren't planning on staying with a property for a long period. If you’re on a fixed income, an ARM (especially a short-term ARM) may not be your
best choice.
|
