In America, the "classic" mortgage is a 30-year fixed-rate mortgage. This isn't the first mortgage, though; the idea started during FDR's presidency, more than 60 years ago. Fixed rate mortgages have been very popular in the United States for three generations, and for good reason:
- Set Price Mortgages are easy to get, reliable, and easy to plan for.
Fixed-rate mortgages are not flexible, and most people don't think of them as being affordable.
That's starting to change, though. As mortgage rates rise across the board, adjustable rate mortgages, or ARM loans, have fewer and fewer advantages over fixed rate mortgages. The only exception is that most popular Option ARM or Cash Flow Option loans on the market are actually adjustable rate ARM mortgages. But in the last few months, new programmes have come out that give you the flexibility of an adjustable-rate mortgage and the security of a fixed-rate mortgage.
Now, you can get a 30-year fixed-rate mortgage with a fully amortised principal and interest payment that is as low as, or sometimes even lower than, a competing ARM or adjustable-rate mortgage. There are also 30 Year Fixed Mortgages that let you pay only the interest for the first 10, 15, or even 20 years. And to round out the options, minimum payments, which used to only be available with adjustable-rate mortgages, are now also available to people who want a fixed rate for 30 years.
So why switch to an ARM in the current market? Depending on your credit score and other factors, like how much equity you have in your home, you may or may not be able to get a 30 year fixed rate mortgage with better terms than an adjustable rate mortgage. In this case, it might be best to choose a Hybrid ARM mortgage, which lets you choose a fixed rate for anywhere from 6 months to 10 years. Most of the loans in this category are fixed for 3 or 5 years. They are called "hybrids" because they combine an adjustable-rate mortgage with a fixed introductory rate, which is sometimes called a "teaser" or "start" rate. So, does a Hybrid ARM have a fixed rate? Yes and no is the answer. It's a fixed-rate mortgage for the first few years, but you should know that you'll probably want to refinance this loan at some point before the fixed-rate period ends.
The new 30 Year Fixed Cash Flow mortgage, on the other hand, has a fixed principal and interest rate, a low interest-only rate, and an even lower Cash Flow option that lets the borrower put off interest payments in exchange for equity. Once only available to private bank clients with a lot of money, these new fixed-rate mortgages have a lot of flexibility when it comes to payments, but their rates stay the same for the whole life of the loan. The 30 year fixed rate mortgage has never been more affordable, flexible, or easy to get for a lot of people.
Before you decide anything about refinancing your mortgage, it's important to talk to a seasoned expert who specialises in these programmes about your goals and your overall financial situation. As always, our phones and our emails are open to your questions. Until next time, Live Smart.
