Have you finally made an offer on a home that was accepted, and now you need to move forward with getting a mortgage? You'll definitely need to decide on what kind of mortgage you want. Two of the most common types of mortgages have either a fixed rate or an adjustable rate, with each one having its own pros and cons. Here is what you should know about both options before you make a decision.
A fixed-rate mortgage is a popular choice among homeowners because of how simple it is to understand. The interest rate is locked in for the entire duration of the loan, and the mortgage payment will not change until the loan is paid off in full. This can happen by taking the loan to the end of its term or paying the loan off early because you purchased another home.
Many homeowners prefer a fixed-rate mortgage because it offers home buyers predictability and stability. No matter what happens with the market conditions, their interest rate is locked in. This can help families budget for the future because they know exactly what their monthly payment will be.
A fixed-rate mortgage also lets people know the total cost of home ownership with principal and interest payments. All you need to do is take the monthly payment and multiply it by the length of your mortgage in months.
An adjustable-rate mortgage works a bit differently than a fixed-rate mortgage. It will have an introductory period where the rate is actually locked in, but then it will start to change based on market conditions. This means that the interest rate can either go up or down, which depends on interest rates at the time that your rate unlocks.
One reason people would want adjustable-rate mortgages is if they feel that the interest rates are going to go down in the future. It allows them to buy a home immediately but not have to go through the process of refinancing to get a lower interest rate in the future.
It's also important to be aware that the rate lock period for an adjustable-rate mortgage may be shorter than for a fixed-rate mortgage. If the homeowner plans on selling their home during the rate lock period, they could end up paying less interest while they are living in the home.
Reach out to a mortgage lender for more information about fixed-rate and adjustable-rate mortgages.Share