It can be beneficial to consult a financial planner before selecting which type of mortgage suits your needs.
When you are in the process of finding a home, the decision on which mortgage to go with for financing your new property can be difficult. Many factors come into play when deciding which type of mortgage will best fit your needs.
Deciding between getting an adjustable rate or a fixed interest rate can be simple if you understand how each works. Adjustable mortgages have interest rates that fluctuate up or down, while fixed mortgages remain relatively steady throughout their term.
Before attempting to select the right kind of loan, you must understand what these terms mean and how they affect your finances: adjustable rates, fixed rates, ARM (Adjustable Rate Mortgage), FRM (Fixed Rate Mortgage). Visit Prime Mortgage now for the best deals.
Which rates to choose?
Although fixed rates are not as variable as adjustable rates, they tend to be higher than the former. For this reason, it is believed that fixed-rate mortgages require less financial planning on the part of the borrower. What makes an adjustable mortgage advantageous is that the borrower can take the imbalance between his monthly payment and actual interest paid each month and build up equity in their home over time. This equity could then potentially be used for other investments or even to retire existing debts.
When deciding which type of mortgage to use, the best advice is to consider your long-term plans for what you want to accomplish with the financing. If you plan on staying in place for at least five years before possibly moving again, or if you would like to pay off a portion of your mortgage while paying a lower interest rate, you should go with an adjustable-rate. If you plan to stay in the same place for at least seven years, an ARM is also your best option. Keep in mind that the longer term of the loan, the more likely it is that rates will raise.
Consult a specialist
It can be beneficial to consult a financial planner before selecting which type of mortgage suits your needs. In addition, consider consulting with a tax accountant who specializes in real estate taxes to aid you in selecting the right kind of financing for your home or other investment property.
An adjustable-rate mortgage (ARM) is a type of loan in which the interest rate, at the time the loan is made, does not remain fixed for the duration of the term but instead changes periodically. For example, an ARMs interest rate maybe 5% when it is first made available to you but over time, that can fluctuate up or down depending on market conditions.
Establishing an ARM can be beneficial. Eventually, your monthly payments will decrease as you pay off more of your original loan amount and begin drawing equity out of your home. An ARM works best if you plan on staying in place for at least five years before leaving again or if you would like to pay down your while still paying a low interest rate.
An adjustable-rate mortgage is a mortgage with an interest rate that may change after the initial fixed term. These loans may start with one fixed rate for several years before adjusting, and they usually adjust annually.
A fixed-rate loan is a loan in which the interest rate charged by the lender does not change over a specific period of time during the loan term. This allows you to budget more easily, knowing that your monthly payments will remain constant throughout the entire repayment period. You can avoid fluctuations in interest rates because lenders know that if someone accepts a lower rate on their home today, it becomes more difficult for them to sell later as rates begin to rise again.