Is a fixed rate mortgage better for you? Or does it make more sense to get an adjustable rate mortgage (ARM?) Here are a few things to think about.

The Pros and Cons of a Fixed Rate Mortgage

First, let’s talk about the most common type of mortgage. A fixed rate mortgage is the one most people choose for one primary reason: consistency.

Your payment is fixed for the lifetime of the loan. Think about the impact that has over the course of 15 or 30 years.

In the future, you’re likely to make more money than you do now, right? You’ll get pay raises at work and promotions. But even though your income is going up, your mortgage payment is staying the exact same.

Having that consistent payment also makes it easier to build a budget and stick to it. Even though your property taxes may go up every once in a while, your mortgage payment won’t.

So what is the downside to this type of mortgage? There are actually two worth mentioning.

Downside #1 is that if interest rates decrease, you won’t get to ride the wave down. You’re locked in at your higher rate.

Downside #2 is that adjustable rate mortgages typically start with a lower interest rate than a fixed rate mortgage. This makes for a good transition into discussing ARMs.

Pros and Cons of an Adjustable Rate Mortgage

Even though most people go the fixed rate route, there are some nice things about an adjustable rate mortgage.

The first thing to consider is that your initial interest rate on an ARM is lower than a fixed rate mortgage. This is one of the main incentives with going down this path.

If you plan on staying in the home for a long time, this may not matter as rates will fluctuate with an ARM. But if you’re not planning on living in the home for a long time, an ARM might make sense to have lower monthly payments.

Another advantage to the ARM is your interest rate can decrease. If market rates were high and started to drop, an ARM would let your rate get lower, effectively lowering your monthly mortgage payment.

But as with anything, there are downsides to this type of loan. Interestingly enough, it’s the opposite of what makes fixed rate loans popular.

The biggest downside is that your rate can go up. If interest rates go up, so does yours… driving up your monthly payment.

That’s why ARMs got such a bad reputation with the 2008 financial collapse. A lot of people had taken out ARMs and weren’t able to pay the payments once they rose.

Is an ARM or Fixed Rate Right for You?

So what’s the best one for you? Should you go the route of knowing exactly what your payment will be? Or will you take the lower interest rate and stick with an ARM?

It’s not an easy decision, but we’re here to help you make it. Give us a call at (877) 556-2655 and we’ll help you determine the best one for you.

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