A Chance to Save with a Small Risk
Fixed-rate mortgages are nice because they take away the stress
and anxiety of the next payment. You don’t have to worry
about how much interest will be or how much principal will be
next month, because it is the same every single time. For people
with a steady income who plan on living in their house for a long
period of time, fixed-rate mortgages can be just right. However,
there are some people who prefer to go with an adjustable rate
mortgage (ARM) that allows interest rate to be on sort of a pulley—being
determined by an index in accordance with the market. This means
that with adjustable-rate mortgages, your interest may go up or
down at any time.
The advantage of adjustable-rate mortgages is that you are usually
charged less interest at the beginning than you would be charged
with a fixed-rate mortgage. This also gives you a chance to qualify
for a loan-extension if the lender is unsure about whether or
not to approve you for a long-term loan. Once they see that you
are making the payments for the first year or so, they will probably
be ready to extend the loan.
The choice is yours, but there is no guarantee with this loan.
You may save a large amount on your mortgage if the index stays
the same or declines, but you are also taking the risk of losing
if the market hikes your interest up.
Adjustable-rate mortgages are usually recommended to people who
can afford increased interest in the event that it would happen.
Keep in mind that often rates go up and down, so you could pay
more for a while but make up for it when rates drop. Another big
factor is your plans for your home. If you are fairly sure you
will be living in your home for twenty to thirty years, adjustable-rate
mortgage may be more risky than if you are only going to be there
for ten. You will probably be able to afford higher interest if
you are going to be selling soon, but if you are staying and the
interest continues to rise or stay high, that may pose more of
a financial burden.
Talk to a lender about the adjustable-rate mortgage and compare
it with your other loan options. Make sure that you consider all
aspects of the loan, long-term and short-term, before you jump
to a conclusion and purchase a mortgage.