November 7, 2013

What is the difference between a fixed rate mortgage and an adjustable rate mortgage? What works best for the long term owner?

3 thoughts on “November 7, 2013”

  1. Alex Christianson says:

    Adjustable rate mortgages can start off at a lower interest rate which gets higher. Typicaly larger loans an be taken out with the adjustable mortgage. Fixed mortgage rate has the interest rate “locked in” and will not change. The best for the long term owner(In terms of how much money is not spent over all) is a low term fixed rate mortgage, like paid off within 15 years.

  2. Katherine Graham says:

    A fixed rate mortgage has an interest rate that stays the same throughout the term of the loan. An adjustable rate mortgage, on the other hand, has an interest rate that is periodically adjusted. A fixed rate mortgage works best for the long-term owner.

  3. Mike Finley says:

    Well said you two. Alex was just a bit faster with his response. Let’s recap.

    The fixed rate loan (15 or 30 years normally) is locked in for the term of the loan. The adjustable rate loan starts out with a lower interest rate and then is adjusted over time based on an index. The initial lower rate is very enticing for many as it reduces the monthly payment, but it really is no more than a teaser. It will rise over time, which will gradually make the mortgage payment go higher and the amount of interest you pay go up.

    Buying a home should be a long term deal. If you don’t see yourself living there for at least 5 years (personally I would say 10 is a better number) DON’T BUY. Rent until you are ready to settle down. When you are ready and you have the 20% to lay down for your down payment, get the 15 or 30 year fixed rate loan (try hard for the 15 as you will say a ton of money in interest). Keep this matter simple, your pocketbook will thank you!

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