Anyone can find it exciting and stressful to buy a house. Even if this is your first time buying a home, you may be excited about the idea of owning your own place. However, deciding between the many different types of mortgages may make you feel confused and worried.
Adjustable rate mortgages and fixed rate mortgages are two of the most common types of mortgages you can get. Fixed-rate mortgages are the most common type of home loan. The interest rate stays the same for the entire length of the loan. This type of mortgage has a number of important benefits. First of all, if you are careful with your money, this type of mortgage will give you peace of mind because your monthly mortgage payment won't change. You don't have to worry that a change in your mortgage payment will throw off your budget for the rest of your bills.
A mortgage with an adjustable rate works in a different way. With this type of mortgage, you may be able to get a lower interest rate than you could with a fixed-rate mortgage, but the interest rate is not fixed. This means that your monthly mortgage rate could change as interest rates change. Because of these changes, you might not be able to plan your budget every month if you have this kind of mortgage. Most of the time, there is a limit on how much the interest rate can change, but for some homeowners, even a small change can be too much. Of course, interest rates could also go down, and if that happens, your monthly payments will go down with the interest rate because your mortgage is adjustable.
When deciding between a fixed-rate mortgage and an adjustable-rate mortgage, you need to think about a few things. Ask yourself if it's more important to be able to plan your monthly budget without having to worry about how your mortgage will change or if you'd rather have a lower interest rate at the start of your mortgage.
Remember that there are other things you can do if you decide you want to get the benefits of both. For example, you can always buy down your interest rate by buying points if you think the interest rate on a fixed-rate mortgage is too high but you don't want to have to worry about it changing. This will mean that you have to pay more up front for your mortgage. However, if interest rates are high, it may be worth it to pay more up front to lower your interest rate.
If you decide to go with an adjustable-rate mortgage, make sure you know how high the rates can go and that your monthly budget has enough "wiggle room" to cover any rate increases. This could help you avoid getting into a tight spot and losing your home because of rising interest rates.
