Should I Go For a Fixed or Adjustable Rate Mortgage?

A common question that comes up among prospective homebuyers considering the financing process for the first time is: which is better, a fixed rate mortgage or an adjustable rate loan? Each of these vehicles has its pros and cons. The best decision for you will be determined by your specific financial history, the current market conditions, and your home Mortgage Ratesownership goals. Here’s a closer look at the difference between fixed and adjustable rate mortgage.

What’s the background on interest rates?

When you finance a home, the bank lends you a certain amount of money equal to the value of the home and the purchase price minus any down payment you’ve made. In exchange for lending you tens or hundreds of thousands of dollars, the bank charges you a monthly fee that you know as interest rates. Interest rates are set by the Federal Reserve, and individual buyers qualify for different rates based on their credit history. The worse your credit, the higher the interest rate you’re expected to pay over and above the rates set by the Federal Reserve.

What’s the different between fixed and adjustable rate mortgages?

Loans are made for a period of time. Mortgages are often either fifteen, twenty or thirty year loans. With a fixed interest rate product, you’ll be locked into a specific interest rate for the life of your loan. Even if interest rates increase, your payment stays the same. From a budgeting perspective, it’s easy to plan because your payment stays the same each month.

With an adjustable rate mortgage, buyers are offered a fixed rate for a period of a month to up to ten years. The longer the loan is held, the higher the interest rate goes. Payments start lower, and increase over time. In some cases, an adjustable rate mortgage may also have a variable component, meaning that if market interest rates increase your interest rate does as well. The benefits of adjustable products lie in the ability to take out a larger loan and to potentially benefit from drops in interest rates.

Which product is right for you?

Fixed term loans tend to be favored by buyers, because it gives you the ability to plan for the future. However, in some cases, buyers know that their situations will change. For example, buyers may be a young family that expects regular raises and bonuses to improve their income over time and thus enable them to meet higher payments. In other cases, buyers choose an adjustable rate mortgage with plans to refinance if interest rates are expected to drop.

Finding the right mortgage solution for your next Las Vegas home purchase starts with talking to an experienced loan officer about your financial history and future plans. Contact Sydnee Johnson today to arrange for a personalized consultation and get preapproved for the purchase of your dream property.

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Posted on August 26, 2014, in Uncategorized. Bookmark the permalink. Leave a comment.

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