The most common mortgage options are fixed rate mortgage an adjustable rate mortgage. Which of these is best? This depends on your situation and your unique financial goals.
Adjustable rate mortgages come at a much lower initial interest rate than fixed rate mortgages for the first few years. After this initial period, the interest rate adjusts to match inflation which may mean a decrease in your interest rate, though this rarely happens.
More often, your interest rate will adjust upward, and your monthly payments may skyrocket.
Fixed rate mortgages come at a single, set rate for the entire length of the loan term. They are "standard" in this way. Your interest rate will never go up or down.
However, interest rates on fixed rate mortgages are significantly higher than interest rates on adjustable rate mortgages.
If you plan on refinancing or selling before the initial low-interest period is up, an ARM mortgage is likely a good choice. It has the benefit of an initial low interest without the burden of higher payments in the future. An ARM can be helpful if you're a first time home buyer.
However, if you are unable to refinance due to a decrease in home equity or fail to sell your home due to a poor market, you'll be stuck in a mortgage with unexpectedly high rates.
If you want to stay with your mortgage long term or feel uncertain about the housing market, get a fixed rate mortgage. A fixed rate mortgage offers the stability of a predictable monthly payment, with no unexpected or sudden changes.
Discuss your options with a mortgage professional and compare mortgage rates to find the deal the meets your needs.
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