It’s a question many potential homeowners face, and one we can help you answer here.
Long-Haulers Favor Fixed-Rate
If you intend to stay in a home for a long time – say the length of a 30-year loan and beyond – then going the fixed-rate route may be the best option. There’s a sense of security in knowing exactly what your monthly payments will be, and if rates fall, or if the home appreciates considerably, you can always consider refinancing with a new fixed-rate loan.
If you’re on a faster track to sell the home in ten years or fewer, or even stay there after it’s paid off in that time, then you might consider an adjustable-rate mortgage (ARM).
First-Time Homebuyers Often Choose ARMs
And especially first-timers who aren’t certain that this is their forever home. Often the big appeal for these folks is the more affordable introductory rate they’ll have over their first few years in the home with an ARM. And that lower rate (typically below that for a comparable fixed-rate loan) translates to purchasing power when shopping for that home – another big plus that especially appeals to those who are new to the housing market.
How well do you handle uncertainty?
While most ARMs come with caps – limits on how high the interest rate can go – the rates can go up according to market conditions. It’s a risk, but literally a calculated one, as you can calculate what your payments would be if the rate rose to the maximum level. But the rate could come down and save you money, a distinct possibility with the recent rise in rates from their historic lows. If this uncertainty seems nerve-wracking to you, a fixed-rate mortgage might be better.
Home Price Matters
How much are you looking to spend? If you’re buying a more expensive home, an ARM may make more sense. The higher the home’s price, the more the homebuyer can save in interest paid during the loan’s introductory fixed-rate period. That could end up being tens of thousands of dollars less than the interest paid on a fixed-rate mortgage during that same period.
People who are on tighter budgets often choose ARMs as well; the lower monthly payments during the loan’s initial fixed period can make a big difference no matter the home’s price.
But perhaps the best way to decide what’s right for your scenario is to talk to an expert loan originator at the Decker Group at First United Bank Mortgage. Connect with us online or give us a call at (972) 591-3097.