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Fixed Rate vs. Adjustable Rate Mortgage
Did you know that nearly 65.5% of Americans own a home rather than rent?
Having your own place is the ultimate goal of many people, but the costs can often be daunting. That’s why it’s important to get the best mortgage possible. There’s a lot of factors you should consider before signing papers.
Are you wondering what your two main choices are? Keep reading to learn all about a fixed-rate vs. an adjustable rate mortgage.
A Fixed-Rate Mortgage
As the name suggests, a fixed-rate mortgage has a rate that stays the same until the loan has been paid in full.
This is not to say that the exact payments and interest rates you pay each month will be identical. Rather, you rest easy knowing that the combined payment for each factor will be the same.
This kind of predictability can make it much easier to budget on a daily basis and far into the future. This is especially true when you realize how much fluctuation interest rates can have otherwise.
Without fixed-rate mortgage terms, you can end up defaulting if there’s a skyrocket in the amount of interest you have to pay each month.
An Adjustable-Rate Mortgage
Unlike a fixed-rate mortgage, an adjustable-rate mortgage can change. It’s often the case that this mortgage begins with an interest rate that’s below the current average. However, it will increase over time.
Depending on the lifetime of the mortgage, the interest rate could go beyond what you would have paid had you gone with a fixed-rate mortgage. The good news is that most loans of this type will have a known time period in which the interest rate stays more or less the same.
The exact time period can vary quite a bit. Some can be as short as 30 days while others can be as long as a decade.
Once this time period is up, you can expect the interest rate to reflect the most up-to-date rates.
Questions to Ask
If you’re on the fence about which type of mortgage is right for you, then you should spend time answering relevant questions.
For instance, you need to find out how much money you currently have. The bigger the down payment you offer to a mortgage lender, the better.
You should also try to calculate whether you can afford a higher interest rate in the future. This often requires some knowledge of market trends.
Don’t forget to consider the option of Refinance Home.
Ready to Get an Adjustable Rate Mortgage?
Now that you’ve learned all about a fixed-rate vs. an adjustable rate mortgage, you can decide which one is right for you. Once you’ve figured it out, you’ll be ready to start a new chapter in your life as a proud homeowner.
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