Fixed Or Adjustable - A Mortgage Loan Dilemma

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Fixed or Adjustable - A Mortgage Loan Dilemma
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Let's clear the air Adjustable rate mortgages
are not bad. Yes, they've gotten a "bad rap" over
the last year because people tend to associate
adjustable rate mortgages with recent housing
woes plaguing the nation but the loans are not
the cause of the nation's real estate crisis
misunderstanding and misusing them is. The
reality is that adjustable rate mortgages can, in
fact, be an excellent mortgage loan option IF you
fully understand how they work. So, with that
said, it's time to learn.
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Who is eligible for an adjustable rate loan? As
with any mortgage loan, anyone can apply.
However, adjustable rate loans do tend to be more
appealing to those who deal with budgeting
changes well and those who don't plan on living
in a specific house for more than three to five
years. Why? Keep reading.
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What exactly is an adjustable rate? An ARM is one
of the two most popular mortgage loan types
offered in the United States. As the name
suggests, the mortgage loans are called
adjustable because the rate of the mortgage loan
changes periodically-most commonly every six
months. Mortgage loan firms often abbreviate
"adjustable rate mortgage" with "ARM."
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How do ARM's work? The process for obtaining an
ARM is the same as any other loan type. You must
apply for a mortgage loan and then, based on your
credit standing, a mortgage loan officer will
process your information to determine which
lenders are willing to fund your mortgage. In
most cases, loan officers will present you with
multiple home loan options-ARM and fixed-rate
mortgages. Why do people choose the adjustable
rate loan type? The simple answer The numbers
associated with ARMS always look great! In fact,
they're nearly too good to be true...but they are
true. The interest rates are low and the monthly
mortgage payments are manageable for a much
larger percentage of the population than fixed
rate loans.
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When is an ARM a good idea? Typically, ARMs are
best for homebuyers who plan on living in a home
for just a few years. The reason Most ARMs are
for 5-years or less after that time, the ARM
typically converts to a higher interest
fixed-rate mortgage loan. ARMs can also be a good
alternative for real estate investors who cannot
obtain an interest only loan for an investment
property. Though anyone can apply for an
adjustable rate mortgage loan, whether it's the
best type of loan is completely dependent upon
the homebuyer. That's because the continuous
changing of the mortgage interest rates and
subsequently, the mortgage payments can be a
financial stress for some homebuyers. The ARM
becomes even more of a stressor once the ARM
matures and the mortgage loan interest rate
spikes.
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So, what's the alternative to an adjustable rate
mortgage? A fixed rate mortgage of course.
Like ARMs, the name says it all for fixed rate
mortgages. Fixed rate mortgages maintain the same
interest rate through the life of the loan and
therefore, the same mortgage payments. However,
there is a tradeoff for that predictability
higher interest rates. That's why those who plan
to stay in a particular home for three or more
years often prefer fixed rate mortgage loans.
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In the end, the key to determining which type of
loan is best-fixed or adjustable-is about
mathematics and lifestyle. If you're on a limited
budget but expect your income to increase
substantially in each of the upcoming years, an
adjustable rate mortgage may be the best option
for getting you into a home sooner rather than
later. However, if you're uncertain about if or
how your income will fluctuate, it's best to play
it safe and opt for a fixed rate loan. That way,
your mortgage payment won't be a surprise,
regardless of what the economy is doing. Of
course, if you base your home mortgage loan
choice on a mortgage payment that you can afford
comfortably based on your current financial
situation versus trying to "figure out how to
make things work," either type of loan will have
you in your dream home in no time.
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