Interest rates are higher than we’ve seen in years, so if you’re braving the housing market, your mortgage matters. In the past, a 30-year fixed mortgage was the overwhelming favorite. Today, people are exploring other options to score the lowest interest rate.
Many people aren’t aware of how many mortgage options are out there because they’ve never needed to research them. A 30-year fixed mortgage has always been affordable enough. Now people are looking at shorter loan terms or adjustable-rate mortgages as money-saving options.
Adjustable-rate mortgages, or ARMs, are sometimes considered riskier and a little more confusing than their fixed-rate counterparts. Is that still true? Let’s find out! Today we’ll give you a quick rundown on ARMs and fixed-rate mortgages. While we’re here, we’ll throw in some discussion about that intimidating 15-year term!
Fixed-Rate or ARM: That Is the Question!
A 5/1 ARM mortgage maintains a fixed interest rate for five years. After that, it turns into a true ARM. At that point, your interest rate will change based on the current market rate. This usually happens once a year.
ARMs typically have a lower initial interest rate than a fixed-rate mortgage. Sometimes that difference is as much as 1%! If rates plummet after the ARM’s fixed period, you can always look into refinancing to a fixed-rate mortgage to lock in a lower rate.
So, should you opt for a fixed-rate mortgage or an ARM? There’s no correct answer for everyone. It depends on the current interest rate, how much risk you are willing to take on, and what your mortgage broker advises.
Shorten the Span of Your Loan With a 15-Year Fixed Mortgage
Even with today’s astronomical interest rates, some forward-looking borrowers want to avoid ARMs. If this is you, another option is a 15-year fixed-rate mortgage. The downside of this plan is that you’ll have higher monthly payments to contend with. The upside is that a shorter loan term equals less interest paid over the life of the loan. If it’s in your budget in the short term, a 15-year fixed mortgage can add up to long-term savings.
Contact Us Today!
Deciding which mortgage fits your needs and budget isn’t an easy task. Let us do the research for you! Contact us at, MortgageDepot, today to determine whether a fixed-rate mortgage or an ARM will help you reach your real estate goals!
Connect with one of our loan consultants for more information.
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