There are two primary types of mortgage: a fixed-rate and an adjustable-rate mortgage (ARM). Any mortgage company may offer a variety of loans that fall under these two major types.
Both types of mortgage offer benefits, depending on a number of factors — primarily the financial capacity of the person applying for a loan.
What are the benefits of a fixed-rate mortgage?
The set rate of interest is what separates this type of mortgage from that with a “floating” rate, which is present in an ARM. That does not mean the principal and the interests do not change every month; it only means that what you pay monthly remains the same throughout the life of the loan.
The payments you make during its initial years are likely to be only for the interest. When the interest has been pretty much paid off, your payments will begin to cover the principal. With an ARM, the payments you make each month vary, making it more difficult to budget.
The main draw of a fixed-rate mortgage is that it’s easier for the borrower to understand and budget for. Most borrowers go for the 30-year mortgage because this is the loan that offers the lowest monthly installments.
Who should get a fixed-rate mortgage?
A fixed-rate mortgage is a good choice for a borrower who has enough money to afford the house they want. This is because most fixed-rate loans have a higher monthly rate than comparable adjustable-rate mortgages. This is also the right option if you would like to avoid surprises on your monthly payments.
How can you take advantage of a dipping market?
For those with an ARM, falling market prices is good news since they can benefit from lower monthly payments while the market is low. If you have a fixed-rate mortgage, however, you will keep paying the same amount, regardless of market conditions. This is not without a solution, though. Altius Mortgage Group noted that you could either keep paying the same amount or find an ideal mortgage refinance in Utah. The right refinancing term can help you save money, thanks to falling real estate prices.
Fixed-rate mortgages give you the assurance that you won’t have to pay a monthly installment that’s beyond your normal paying capacity, which could happen if there is a real estate boom in your area. Discuss your options with your realtor, real estate lawyer, or a trusted mortgage company.