Financing For Purchase?

You’ve found the perfect home for you and your family and now comes the tedious part. Finding the right mortgage. But it doesn’t have to be a painstaking process. By comparing fixed rate and adjustable rate mortgages side by side, you can start to prepare for which financing option best suits your situation.

With a fixed rate mortgage your interest rate is set prior to closing on your home and does not change for the entire term of the loan. Advantages of fixed rate mortgages include knowing exactly what your monthly payment for principal and interest will be for the entire mortgage. Also you’ll have no worries about interest rate hikes that will raise your payments.

Some kinds of fixed rate mortgages include an initial interest rate that is higher than an adjustable rate mortgage. If interest rates decline, your payment will stay the same. If interest rates decline significantly, you can refinance your mortgage to take advantage of the lower interest rate. However, refinance charges will probably be incurred. So the interest rate drop must be able to justify these costs.

 

With an adjustable rate mortgage or ARM, the interest rate can vary throughout the term of the loan. How often and how much the rate changes depends upon the adjustment period and interest cap on the loan. Pros of an adjustable rate mortgage include being initially priced at a lower interest rate than fixed rate mortgages. This results in a lower initial payment. So if you plan on being in a house for only 3-5 years, an ARM allows you to pay a lower monthly payment for that period of time than a fixed interest rate mortgage would. If interest rates drop, an ARM provides you with a way to take advantage of these lower rates without having to refinance your home and pay potential closing costs. One significant drawback to adjustable rate mortgages is that a hike in interest rates, will likely increase your payments.

 

Since it’s hard to predict interest rate changes it may be difficult to plan an ARM payment into your budget. Also, try to get the lowest interest cap you can. Be weary of the word discount when looking at ARM’s. This could mean that the loan will most likely have a shorter adjustment period, which may lead to high costs in the long run.

 

Homeowners in our area have more options than ever for financing their home purchase. Talk to one of our sales professionals. The will be happy to refer you to a reputable mortgage broker or online mortgage website to find the financial options that fit your needs.