Homeownership is something we all dream of. The desire to own a place to call our own is a fundamental part of the American dream.
Purchasing a home, however, isn’t always so easy, especially given the market’s turbulent nature throughout the last decade. Some of us may need a little assistance buying a home in the form of a loan.
Seems simple enough, right? Just sign up for a loan, qualify, and get your money.
Except there are multiple types of loans, each with their advantages and caveats. So which is best for you: a fixed mortgage or an adjustable mortgage?
Read on to learn the ins-and-outs of both types of loans and see how you can determine which is best for you.
There are a few important details to keep in mind when considering a fixed loan. First and foremost is the price, which can be costly.
When taking out a fixed mortgage loan, payments are established at a set rate. This means that, even if you lose a job or have unexpected bills, you’ll be required to pay the agreed upon amount.
While payments stay the same, so does the interest rate. It’s a bit of a trade-off. On one hand, you are paying higher amounts every month. But on the other, you may ultimately save money, as you don’t need to worry about rising interest rates.
Keep in mind that due to the high cost, it can be tough for some potential homeowners to qualify for a fixed loan.
In contrast, an adjustable mortgage is considerably more complicated with far more variables to consider.
At the beginning of the process, the loan officer and prospective homebuyer sit down and agree upon initial rates, as well as a calendar of steadily increasing payments.
This type of loan can come at a big disadvantage. Those who take out an adjustable loan will pay less in the short term, but will likely end up paying more overall.
Why the extra cost?
It boils down to interest rates. The good news is that initial payments tend to be lower than the standard market value. The bad news is that since interest rates vary so much, you’ll never really know what to expect and that can be a huge hit to your monthly budget.
Which Is Best: A Fixed Mortgage Or Adjustable Mortgage?
Which mortgage is better will largely depend on a few factors. Before speaking to a loan officer, consider the following questions.
How Secure is Your Job?
It’s possible to qualify for a loan without a salaried position, but signing up for a loan can be scary if your job isn’t entirely secure. Would you be able to pay the larger payments of a fixed loan if you lost your job?
Would Rising Interest Rates Affect You?
If signing up for an adjustable mortgage, keep in mind that interest rates will rise. Will these price hikes cause any problems in your life? Be sure to consider your future goals and plans.
In the end, it’s up to you to decide which type of loan is best for you. Yes, the higher payments of a fixed mortgage are tougher at first. Nevertheless, you’ll likely end up paying less than if you take out an adjustable mortgage.
If you have any questions or would like more information on either type of loan, get in touch with us. Our team of loan specialists is ready to answer any questions and help you get the home of your dreams.
We at 7th Level Mortgage are an experienced team of mortgage professionals based out of New Jersey and serving the east coast from Pennsylvania to Florida including Delaware and Maryland. We have won numerous awards for our excellent professional work and reputation with clients for being extremely diligent, accessible and hands-on throughout the entire mortgage process.