Adjustable vs. Fixed Rate Mortgages

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ryan | September 5, 2017

Adjustable vs. Fixed Rate Mortgages: Which is Best for You?

Wikileaks has been in the news a lot lately, hasn’t it? So-called “leaks” used to be perhaps an occasional event but today the leaks seem to be much more frequent as well as, well, juicy.

The problem Wikileaks has is credibility. Yes, the reports are released to the media but it’s difficult to determine whether or not the leak is authentic or just a smoke screen for something else.

If you’re buying a home or refinancing a mortgage it may also be a bit confusing when determining whether or not a fixed rate is better or an adjustable rate mortgage. Unfortunately, you won’t see a Wikileaks report about which is better. But then again you don’t have to.

Fixed rate mortgages typically range from 10 to 30 years in five year increments. Your mortgage lender can offer a 10 year fixed, 15, 20, 25 and 30.

Monthly Payments

Certain portfolio loans can be as long as 40 years. Lenders don’t really have any preference over which term you select but in general the longer the term of the loan the lower the monthly payment. The shorter the term, the higher the monthly payment but with shorter terms the total amount of interest paid is much, much less.

Adjustable vs. Fixed Rate Mortgages

Adjustable Rate Mortgage

Adjustable rate loans in today’s market are hybrids. The rate of the hybrid loan can adjust once per year once the fixed period ends. These initial fixed rate terms are typically offered in 3, 5, 7 and 10 year periods.

What is the allure of a hybrid? A hybrid will offer a slightly lower rate compared to a fixed rate loan. So, which should you choose?

Fixed Rate Mortgage

Your loan officer will ask how long you intend to keep the property you’re thinking of financing. If you’re long term, it might be better to select a low fixed rate. Fixed rate loans can’t change at any time in the future.

Lower-rate hybrid mortgages can be beneficial to borrowers who only plan to keep the loan a short period of time. No one can ever tell the future. If your future sees you in your next home then a fixed rate locks in today’s rates for the life of the loan.

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