How to Compare Fixed Rate Mortgages and Adjustable Rate MortgagesThere are many types of mortgages, and the more you know about them before you start, the better. To compare one Adjustable Rate Mortgage with another or with a fixed-rate mortgage, you need to know about indexes, margins, discounts, caps, negative amortization, and convertibility. You need to consider the maximum amount your monthly payment could increase. Most important, you need to compare what might happen to your mortgage costs with your future ability to pay. FIXED RATE MORTGAGES In a fixed-rate mortgage, your interest rate stays the same for the term of the mortgage. The main advantage of a fixed-rate mortgage is that you always know exactly how much your mortgage payment will be, and you can plan for it. Benefits and Advantages: - Low rates for the full term of your mortgage - Security of a fixed monthly payment for the life of you loan, regardless of fluctuations in interest rates - More stability may give you peace-of-mind Disadvantages - Higher initial monthly payments compared to those of adjustable rate mortgages - Less flexibility ADJUSTABLE RATE MORTGAGE (ARM). With this kind of mortgage, your interest rate and monthly payments usually start lower than a fixed-rate mortgage. But your rate and payment can change either up or down, as often as once or twice a year. The adjustment is tied to a financial index. Throughout the life of that loan, the principal and interest payment will adjust periodically based on fluctuations in the interest rate. Benefits and advantages: - Lower Initial payments due to lower beginning interest rate - Ability to qualify for a higher loan amount due to lower initial interest rates - Lower interest payments if the interest rate drops over time - Interest rate caps limit the maximum interest payment allowed for the loan Disadvantages - Your future monthly payment is uncertain. - Initial lower interest rate and monthly payments are temporary and apply to the first adjustment period. Usually, the interest rate will rise after the initial adjustment period. - Higher interest payments if the interest rate rises over time SUMMARY A Fixed Rate mortgage will offer you the security of knowing that your mortgage interest rate will not change during the term of your fixed rate. The advantage of an Adjustable Rate Mortgage is that you may be able to afford a more expensive home because your initial interest rate will be lower. A Fixed-Rate Mortgage applies the same interest rate toward monthly loan payments for the life of the loan. Fixed-rate mortgages are more straightforward and easier to understand than ARMs. They are more secure for the buyer and they are very popular with first-time home buyers. Since the risk to the lender is higher, fixed-rate mortgages generally have higher interest rates than ARMs. A fixed rate mortgage is ideal for anyone who likes to budget monthly expenses and plans to keep their home for several years. A more detailed version of this article including a glossary of terms is available at: http://www.us-banks.org/archives/1970 [Disclaimer: This article is provided for information purposes only. No warranty is either expressed or implied. Under no circumstance will the author be liable for any loss or damage caused by a user's reliance on this information.] Copyright © 2005. Chileshe Mwape writes for The US Banks Guide: http://www.us-banks.org/. Find informative articles and news stories about banking and finance. This article may be reprinted as long as all the above links are active and clickable.
MORE RESOURCES updated Thu. April / 25 / 2024 Only Half Of Black Seniors Approved For Home Repair Or Refinance Loans To Age In Place Block Club Chicago 10-year refinance rates: What to know about the current market CNN Underscored Should You Refinance Halfway Through Your Mortgage? Bankrate.com How to Refinance Your Mortgage NerdWallet Mortgage Interest Rates Today, April 24, 2024 | Rates Still Slated to Go Down This Year Business Insider Loan Modification Vs. Refinance Bankrate.com 30-Year Mortgage Refinance Rates Business Insider Mortgage Interest Rates Today, April 22, 2024 | The Still-Hot Economy is Keeping Rates High Business Insider 15-Year Mortgage Refinance Rates: Compare Current Rates Business Insider Mortgage Interest Rates Today, April 21, 2024 | Rates Remain Near 7% Business Insider Average Mortgage Interest Rates: Mortgage Rates by Credit Score, Year, and Loan Type Business Insider The best mortgage lenders for refinancing in April 2024 CNN Underscored How To Get The Best Refinance Rate Bankrate.com How To Choose The Right Kind Of Refinance For You Bankrate.com Will Interest Rates Go Down in May 2024? | Mortgage Rates Forecast The Mortgage Reports MBA: Mortgage Applications Decreased in Weekly Survey Calculated Risk Mortgage Rates This Week NerdWallet Should You Refinance Your Mortgage In 2024? Bankrate.com Best Mortgage Refinance Lenders In 2024 Bankrate.com Mortgage Interest Rates Today, April 19, 2024 | High Rates Make for a Challenging Homebuying Season Business Insider Current mortgage refinance rates CNN Underscored When to Consider Refinancing Your Mortgage Business Insider Best Refinance Lenders of April 2024: Refinance Your Mortgage The Motley Fool How To Refinance A Rental House Bankrate.com Mortgage Rates Chart | Historical and Current Rate Trends The Mortgage Reports Mortgage Interest Rates Today, April 20, 2024 | Rates Remain Elevated, but They Could Fall Later This Year Business Insider Best Mortgage Refinance Lenders of April 2024 Business Insider Refinance Requirements: What You Need to Refinance Your Home in 2024 The Mortgage Reports How Soon Can You Refinance a Mortgage? NerdWallet Refinancing a Home Equity Loan (2024 Guide) MarketWatch How To Refinance An Underwater Mortgage Bankrate.com Conventional Refinance Rates and Guidelines for 2024 The Mortgage Reports Mortgage Rate Forecast February 2024 Bankrate.com 30-year refinance rates: What to know CNN Underscored Mortgage Rate History: 1970s to 2023 Bankrate.com Current 15-year refinance rates — and lenders that offer them CNN Underscored When should I refinance my mortgage? To determine if a refinance is the right move for you, you’ll need to know the ... The Wall Street Journal Pros and Cons of a Cash-Out Refinance Bankrate.com What Credit Score Do I Need To Refinance? Bankrate.com Should I Refinance My Mortgage Now? When to Refinance As Rates Drop Business Insider Office of Research blog: A look at cash-out refinance mortgages and their borrowers between 2013 to 2023 Consumer Financial Protection Bureau
|