If you have a mortgage, you are certainly paying interest on it. This is true for all loans, as it incentivizes lenders to provide you with the funds you need. It also gives them security should the loan default. Long-term interest rates are primarily determined by the demand for U.S. Treasury notes, and they fluctuate accordingly. There is currently high demand, which is why interest rates are currently very low. This is advantageous for buyers at the moment, but there is still some nuance to understand about the types of mortgage loans available to you. In today’s blog, Family Home Loan Texas discusses the differences between fixed-rate and adjustable-rate mortgages and how to decide what is best for you.
Fixed-Rate Mortgage
This type of mortgage has a set interest rate for the duration of the loan. It is unaffected by changes in the overall national interest rate and allows for homeowners with the type of mortgage to budget more easily. Typically, with this kind, your monthly payments remain the same. During your earlier payments, you will mostly be making payments towards the interest, but this will go down and you will start to pay more off the principal. The primary advantage of this type of interest rate is that it is unaffected by sudden spikes in the overall national rate, insulating you from unexpected larger payments. The downside of this loan is that qualifying for one when interest rates are high is more difficult and you will not see any lowered payments should the interest rate falls. If you want to get a reverse mortgage and receive your funds as a lump sum, you will need a fixed interest rate to do so.
Adjustable-Rate Mortgage
This kind of mortgage, also known as ARM, has an interest rate that fluctuates. It begins below the market rate on a similar fixed-rate loan, and then the rate rises as time passes. If the ARM is held for long enough, the interest rate will likely surpass that for fixed-rate loans. Adjustable-rate mortgages have a set period of time in which the initial interest rate remains constant. After this stretch, the interest rate adjusts at a pre-determined frequency. These loans have an adjustment frequency which is the amount of time between interest rate adjustments. This loan is typically cheaper than a fixed-rate mortgage for the first few years of it, but once it resets to the national rate, it will probably become higher. It could also drop if interest rates do, but this is difficult to predict. Luckily, if you start with an ARM and decide you want more certainty, you can always refinance to a fixed-rate mortgage (or vice versa). Overall, you want to do what saves you the most money over the duration of your loan.
Contact Us To Learn More About Interest Rates
We are here to help you with all aspects of home loans, so we are happy to walk you through what you need to know about fixed-rate and adjustable-rate mortgages. Family Home Loan Texas was founded by loan originator and long-time mortgage professional Rob Bramer. Rob has helped clients secure the loans they need both locally and nationally and can help you get the loan you need to live life on your terms. Call 1-800-990-LEND (5363) to speak with Rob about how he and his team can help you through all aspects of buying a home.
