Thursday, March 14, 2013

Tutorial on Adjustable and Fixed Rate Home Loans

Fixed Rate Mortgages Seem Safer, but Adjustable Rate Mortgages Tend to Be the Better Deal Over Time

Bill explains adjustable and fixed-rate mortgages.

When you are getting ready to buy a new home or refinance, you will be faced with many questions.  One of the goals of this blog is to help you know as much as you possibly can about your decision.  The more you know, the better the decisions you are likely to make. 

The choice of Fixed vs Adjustable Home Mortgage Loans is not one that the Lender or the mortgage broker can make for you.  It really has much to do with how long you are going to keep the home and how much risk you want to assume.  In the video above, Bill Rayman discusses in detail the reason why adjustable home mortgages are generally less expensive.  It is all about who will assume the most risk, you are the bank. 

Here are the definitions Fixed Rate Mortgages and Adjustable Rate Mortgages

  • Fixed Rate Home Mortgage Loans
    If you would like the security of never having your monthly payment change, this is the mortgage that you will prefer. Your mortgage rate and payment are fixed for the life of your loan, whether the loan is 10, 15, 30 or 40 years. With current low rates on fixed rate home mortgages, this is an ideal solution for most borrowers. When rates are high, it sometimes makes sense to use an adjustable rate in hopes of lowering future interest costs.

  • Adjustable Rate Home Mortgage Loans In some markets it may make sense to lower your monthly mortgage loan payment during the early years of your mortgage. Mortgage rates for ARMs are usually lower in the early years than traditional fixed rate programs. This can be especially true if you plan on selling or refinancing your home in less than 10 years. However, some adjustable rate home mortgage loans do not amortize fully or may even include reverse amortization. This means that you are not increasing the equity in your home as fast as you would in a conventional loan. If you lock in a rate for several years only, you risk interest rates increasing which in turn could result in your monthly payments going up. 

If this was useful, you might also like:  The Mortgage Genius Bar - Ten Tips that Could Help You in 2013


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