If you're looking into buying a home, you may find yourself leaning toward a fixed-rate mortgage. It's true that fixed-rate loans are easier to understand and more stable since your interest rate won't change during the duration of your loan, despite what happens to home loan rates as a whole. But there are times when an adjustable-rate mortgage makes sense, and you might find it's the better choice for you.
You Won't Be Living in Your New Home for Long
If you're purchasing a home that you don't plan to stay in for years to come, financing under a fixed-rate mortgage could end up costing you more money than an adjustable-rate mortgage. Getting into a common ARM, such as a 5/1 where your rate stays the same for 5 years before it changes, when rates are low means your monthly payments will likely be less than if you financed under a common fixed-rate mortgage, such as one with a 30-year term. If you plan to sell and move before your rate has a chance to change, an adjustable-rate can be the right decision.
You Want to Build Equity as Fast as Possible
When you take advantage of an adjustable-rate mortgage when interest rates are low, you'll be able to build equity in your home faster than you would under a fixed-rate loan. If you're looking at fixed-rate mortgages and decide you can afford the payments, take a look at the rate for an ARM. If it's lower, you could finance your home under the adjustable-rate mortgage but make higher monthly payments as if you had taken the fixed-rate loan. Doing this can help you build several thousand dollars more in equity, which is exactly what you want to do if you're financing a starter home or you're looking to relocate before the first rate change on your ARM comes up.
You're Expecting a Significant Boost in Income in the Near Future
The advantage of a fixed-rate mortgage is the ability to budget around your monthly payments without surprises. But if you're finding that a fixed-rate has higher monthly payments than you can currently handle, you may still be able to purchase the home you want under an adjustable-rate mortgage. Getting your home with lower initial payments under an ARM may be just the solution you need if you're climbing your career ladder and expect a large increase in income within the next few years. If you have a sizable savings account to help you weather any rate increases or help you pay to refinance your home if needed, an ARM can also be a wise choice. And if your interest rate drops, you won't have to pay to refinance to enjoy the lower rate like you would have to if you had a fixed-rate mortgage.
If you're still unsure about what you can afford and the pros and cons of different mortgage types, make an appointment to consult with an experienced mortgage broker like at Premium Mortgage Corp who can look at your entire financial situation, explain anything in the terms that you don't understand, and help you choose a mortgage you'll be happy with.