How to Compare Fixed and Adjustable Rate Mortgages

Mortgages

• There are various types of mortgages available in the market, and the more you know about them the better are the chances to choose the right one.

• To compare fixed rate mortgage with another mortgage type or with adjustable rate mortgages, you need to consider about the caps, margins, discounts, positive & negative amortization and convertibility.

• Most importantly, you need to know your monthly payments for the home loan that you select.

Types of Mortgages

Fixed Rate Mortgages Adjustable Rate Mortgages

Fixed Rate Mortgages

The main advantage of a fixed rate mortgage is that you always know your exact payment value of your home loan as it allows you to manage your monthly budgets.

Advantages of fixed rate mortgages:

Low – Very low interest rates for the entire term of your home loan

Steady – Default interest rates; there is no need to fear for fluctuations in the interest rate.

Peace of Mind – More stability in interest rates may give you peace-of-mind with repayments.

Disadvantages of fixed rate mortgages:

The initial payment for fixed rate mortgage is much higher when compared to adjustable rate mortgages.

Very less flexibility when compared to all other available types of mortgages.

Adjustable Rate Mortgages (ARM):

Usually, the adjustable rate mortgage starts with very low interest rates and monthly payments when compared to fixed rate mortgage.

After the certain time period, the repayment value may move up or down for once or twice in a year.

Basically, the rate of adjustment for ARM will vary based on your contract.

Advantages:

Lower initial payments due to the lower beginning rate of interest.

Having lot of chances to qualify for a higher loan amount due to lower initial interest rates.

Disadvantages

It is difficult to predict your future monthly payment.

• If your interest rate rises, your monthly payment will automatically get increased.

A fixed rate allows you know the exact payment value

for your home loan as the rate of interest for fixed rate mortgage will remains same during the entire term.

Usually, a fixed rate mortgage is an ideal option for every buyer who wishes to manage monthly expenses or budgets.

The main advantage of an adjustable rate mortgage is that, it allows you to buy a more expensive home because your initial rate and the payment will be lower.

Conclusion

Thank You,

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