Choosing Between a Fixed-Rate Mortgage and Various Adjustable-Rate Home Loans
There’s a lot to determine as you enter the homeowning process. We suggest speaking with a home mortgage broker before making any final decisions.
As you weigh various options, however, consider these briefs words of advice regarding home loan resources.
A fixed-rate mortgage might be best if:
- You plan to stay in the home you’re buying for seven years or more, in which case you’re less likely to save money with a lower-interest adjustable-rate mortgage.
- You want the assurance of having a steady mortgage payment for the duration of the loan, in exchange for a more expensive loan.
- The gap between a fixed-rate mortgage interest rate and an ARM rate is small.
A hybrid ARM might be best if:
- You don’t plan to stay in the home for more than seven years, in which case you’ll pay less in interest on an ARM.
- You’re willing to risk mortgage payment stability for the lower initial rate, in the hopes interest rates drop further or that you can follow through on a mortgage refinancing to a fixed rate at a future date.
- The gap between a fixed rate and an ARM rate is wide.
An option-payment ARM might be best if:
- You have modest current income, but are reasonably certain that your income will go up in the future.
- You have sizable equity in your home and will use the money that would go toward principal payments for other investments.
- You have irregular income (such as commissions or seasonal earnings) and want the flexibility of making interest-only mortgage or option-ARM minimum payments during low-income periods and larger payments during higher-income periods.