Usually the amount to be borrowed is a focus point when shopping mortgages, but buyers should consider the pros and cons with a fixed rate mortgage or adjustable rate mortgage. Depending on the conditions of the loan, each has their advantages.

Fixed Rate Mortgages

A fixed-rate mortgage secures in both your interest rate and monthly payments for the entirety of your loan, and is the most stable offer. Consider the following:

Predictable budgeting: Your repayment obligations will be clear.
Interest rate stability: Your payment will hold steady, even if interest rates rise.
Flexible terms: Most borrowers opt for a 30-year mortgage, but shorter terms, such as 15 or 20 years, may be a better fit for your goals.

Current interest rates are low, so this is an attractive option for a mortgage. Contact us to learn more about this option today!

Adjustable Rate Mortgages

An adjustable-rate mortgage (ARM) is a combo mortgage, with a fixed interest rate for an initial term—perhaps, five years—then the interest rate may reset, or fluctuate, typically depending on current interest rates. A 5/1 ARM, for example, is a five-year fixed rate of interest, after which the rate can reset annually.

ARMs typically offer lower initial monthly payments. As a result, an ARM may make sense if you would like greater cash-flow flexibility in the near term and/or think rates might decrease in the future. Other reasons to consider an ARM include:

Lower initial rate: The interest rate during the initial fixed period is generally lower than that of a fixed-rate mortgage, which can save you money over the short term.
Interest rate caps: To protect against rising interest rates, many ARMs offer limits on how much your rate can increase during any given reset period and over the life of the loan. You should nevertheless budget for the maximum interest rate your loan allows once your fixed rate period ends.
Interest-only options: Some ARMs offer an interest-only payment option to lower your initial monthly payments even further. However, it is important to remember that during the interest-only period, your payments will not reduce your loan principal unless you choose to pay more than the minimum billed amount.
Although ARMs can offer attractive initial payments, be certain to budget for potentially higher rates once the initial fixed-rate period ends. Contact us today to learn more about ARMs!