Unless you’re incredibly wealthy, at some point you will need the help of a Mortgage lender. The lender will provide up to 85% finance for the purchase of a property while you must put forward down payment and bear the closing costs. You must decide whether you should take a fixed rate mortgage or go with an adjustable rate mortgage. Both have their pros and cons and the kind of mortgage you choose depends upon your requirements and repayment goals.
Fixed rate mortgage
As the name suggests, this is a kind of mortgage in which the rate of interest remains fixed throughout the duration of the mortgage. It gives peace of mind to the borrower as he knows the amount of money, he has to repay to the lender every month. It is prudent to accept a fixed rate mortgage if you are getting a low rate of interest and you believe rates will go up in future.
Adjustable rate mortgage (ARM)
In this type of mortgage, there is a very attractive rate of interest for the initial part a while the rate of interest fluctuates up and down in the later phases according to the prevailing rates of interest. It is a good idea to accept an adjustable rate mortgage if you believe rates will probably go down in future. You also enjoy a lower initial rate of interest with such a mortgage.
Fixed rate is more popular for obvious reasons
Most first-time home buyers opt in favor of a fixed rate mortgage because of the low rates of interest that are being charged by the lenders. It is only recently that mortgage rates have started their upward journey, but they still are at a comfortable level for home buyers.
If you have availed a fixed rate mortgage and rates start to fall in future, you have no option but to continue to pay the same EMI’s. Of course, you can go for a refinance, but it entails paying costs to your lender. On the other hand, there are inherent risks associated with an adjustable rate mortgage. Yes, you can enjoy low rates for a period of few months or even a year, but you are at the mercy of the market forces later on. However, you can opt for ARM if your lender agrees to put a cap on the mortgage rate if it goes up beyond a specified limit.
For more details or for a personalized assessment of your loans, contact us today. Our team of Mortgage Professionals is ready to assist you.