WHICH ONE IS RIGHT FOR ME?
There are a number of available lending options out there to fund the purchase of your home, but there are two which are most common: Adjustable-rate loans and Fixed-rate loans. For a quick review of the two: fixed-rate loans have the same interest rate locked-in for the duration of the loan, hence the name. Adjustable-rate loans, on the other hand, lock in an interest rate for an initial period, then can fluctuate throughout the life of the loan.
The question is, Which is the right one for you? Our team at Strategy Properties is here to give you insight on which option would be the best for you. Here are questions you need to consider when choosing between fixed-rate and adjustable-rate loans.
Will I Be Able To Afford An Increase In My Mortgage?
We mentioned that when it comes to adjustable-rate loans, the interest rate fluctuates. The introductory rates are lower than with a fixed rate loan. After an initial fixed period, the rate will be set to increase. The attraction to an adjustable rate loan is your initial payment is lower than a fixed rate loan. However, after the initial period, the payment will increase, and potentially be greater than a fixed rate. You need to be prepared for an increase. Having the income to support an increase, and planning ahead, will help you be prepared. Be aware that when the interest rate goes up, so does your monthly payment.
If you think that you might end up emptying your savings just trying to keep up with the fluctuations, a fixed-rate loan might be your best bet. You can better plan your finances, since the monthly mortgage payments will be at a constant rate.
Do I Have The Option To Refinance?
Like any mortgage, you can try to refinance an adjustable rate loan, before the rate increase. This might benefit you, if current rates are lower than what the adjusted rate will be. However, this will all depend on if you qualify for a new loan. Questions like: does my property value support a refi?; do I qualify financially?; is my credit still good?; what are my other debts, need to be answered.
Different Loan Term Lengths
If you do not want to worry about rate increases, and fluctuating mortgage payments, you might want to stick with a fixed-rate loan. This comes with a variety of payoff periods to choose from, 15, 30 years, etc. Basically, the shorter the term of the loan, the lower the interest rate will be. However, with a shorter loan period, your monthly payment will be higher. Most adjustable-rate loans come with 30-year terms.
Will I Be Staying In This Home For More Than 10 Years?
Most home buyers plan to stay for a long period of time in their home, while others plan to sell fairly quickly, within a couple years. A fixed-rate loan may be the obvious choice for those who plan to stay longer in their home, because of the consistency of the mortgage payments, and a lower rate over the mortgage term.
Adjustable-rate loans are beneficial if you plan out your financial strategy. Perhaps the lower initial payments will help you get into a house. Maybe you have a job, that you’ll be getting a pay increase before the first adjustment. Sometimes, it may take a couple rate increases to exceed the fixed rate. Maybe you plan on moving, or selling before a rate increase.
The important point is to plan ahead. Know what the maximum increase could be at every adjustment period. Is there a cap? Planning these future payments will help you decide if an adjustable rate loan is right for you.
Taking out a loan to fund your purchase is a big commitment. Choosing the right loan makes it even harder. Working with the right people in the business allows you to take careful consideration of your finances and investments, while handling your real estate purchase. Our team of professionals at Strategy Properties can help you decide what would be the best option for you. To learn more about our services, contact us at (734) 224-5454 or send us an email at email@example.com.