There are many questions and decisions to make when you’re applying for your first mortgage. However, one of the most important mortgage questions is: ‘Should I choose an adjustable or fixed rate loan?’
The adjustable rates may look more appealing at first glance, as they can be lower than a fixed rate. However, even though a fixed rate is higher to start, it provides stability throughout the life of the loan as the rate cannot fluctuate based on the market.
Some buyers prefer a fixed rate mortgage, as there are no surprises as far as the rate and the monthly payment amount go. Many people also find that the fixed-rate mortgage itself can be more straightforward and easier to understand. Alternatively, adjustable rate mortgages usually feature some very low rates to start with, which normally rise or fall during the term of the loan based on market value. This adjustment can be either positive or negative for ARM customers since rates could fall to much lower, very reasonable levels, or they could also skyrocket. Adjustable rate mortgages can work best for those who intend on paying off their mortgage quicker than the term of their loan.
How Mortgage Interest Rates Affect Payments
At the start of a new mortgage, you will be given a Closing Disclosure that will describe the important information about your loan, and you should receive it three days before signing the mortgage. During this time, you can take the opportunity to go over the terms of the mortgage and make sure everything is in order. To understand how mortgage rates affect payments, you’ll want to take a look at the interest rate information in the Loan Estimate section. This section lists the Loan Amount, Interest Rate, and Monthly Principal & Interest. There are quite a few online sites that you can use to check the current interest rates and compare them with lenders. Also, working with an experienced lender you trust can help you evaluate the type of interest rate and mortgage that works best for you.
Regardless of the type of mortgage you’re looking for, being educated about the terms, options and jargon before making a decision will lead to the best decision for you. If you’re looking to learn more about mortgages prior to making a decision, download our First Time Home Buyer eBook now!