​​Karen Summers Realtor
​​​                             When Results Matter

The Colony Homes Specialist​

[email protected].com​​
Share this:


Fixed or Variable Rate Mortgage Loan: Which Is Better?  This is a common question.  There are several types of mortgages available, but fixed-rate mortgages are the most popular type of mortgage loan in the United States.  So let’s examine them first.

What Is A Fixed-Rate Mortgage (FRM)?
A "fixed-rate" mortgage comes with an interest rate that won't change for the life of your loan.  This means that your total monthly payment of interest rate and principal (the money you borrowed) will remain the same throughout the entire term of the loan.
A fixed-rate mortgage loan lets you accurately predict the amount you will have to pay each month for your property loan - thus enabling you to determine your budget with accuracy. As a fixed monthly payment, it also guarantees payment stability and protects you against rate rises as opposed to adjustable rate mortgages (ARM) that rise and fall with interest rates.
If current rates are low, fixed-rate mortgages offer future home and property owners a very affordable option. It is also the type of mortgage to consider if you think that interest rates will rise in the coming years and you want to keep the current rate.
FRM loans are particularly good for first-time homeowners because they are much easier to understand than ARMs.

What Are The Disadvantages Of A Fixed Rate Mortgage Loan?
Even though you won’t have to pay more when interest rates rise, a fixed-rate loan also means that you won’t pay less when interest rates decline. This means that potentially you could miss out on saving money on your mortgage if the interest rates go lower than the fixed-rate you are paying.
It’s also important to keep in mind that for the first several years the monthly fixed-rate payments are usually more expensive than adjustable rate payments because there is no rate break on early payment interest amounts. Another essential factor to consider is that if you have a fixed-rate and you want to benefit from falling rates, you would have to refinance. Which means that you would most likely have to pay for closing costs and spend a good amount of time doing paperwork.
Fixed-rate mortgages also lack the individual customization that lenders offer on ARMs. And most FRM loans tend to be almost identical from lender to lender, thus making it harder to find fixed-rate loans that are customized for your unique situation
You also should check the current interest rate environment to see if the rates are high or low. If mortgage rates happen to be low, then a fixed-rate mortgage is a wise choice. However, when rates are relatively high, ARMs are a smarter decision because you still have the chance of getting lower payments without refinancing when the rates drop.

Mortgage Loan Words
What Is An Adjustable-Rate Mortgage (ARM)?

Adjustable-rate mortgages (ARM) may sound risky – after all, your payments can increase or decrease based on interest rates, which are out of your control. However, in some cases, choosing an ARM over a fixed-rate mortgage could be a solid financial decision, potentially saving you thousands of dollars.

Variable rate mortgages are attractive because they usually have a low interest rate for an initial period of a few years, and that initial rate is usually less than the rate on a fixed rate mortgage. This interest-rate difference can yield significant savings for borrowers at the beginning of the mortgage term.

However, once the introductory period ends, the rate will move up or down as market interest rates change. Interest rate increases can be problematic for borrowers with variable rate mortgages. In a worst-case scenario, the mortgage payments can become so unaffordable that the homeowner or property owner defaults and eventually goes into foreclosure. In general, the more money borrowed, the more a change in interest rate will affect the monthly payment amount..

Fixed Or Variable Rate Mortgage Loan: Which Is Better? How to Choose?

What’s the best option for you? There’s no universal right or wrong answer. The decisions on loan amount, term, and fixed or variable rate all depend upon your personal situation and flexibility.

There are several factors to consider before choosing the type of loan that is right for you. One of the first and foremost questions to ask yourself is: how long will I keep the property, or stay in the home I intend to purchase? If you plan on keeping the property or staying in the home for a very long period of time, then it is wise to consider a fixed-rate mortgage. However, if you’re  planning on keeping the property or staying in your new home only for a few years, then it makes more sense to think about getting an ARM since you won’t really be exposed to huge adjustments if you plan to sell before the adjustable rate starts.

In contrast, you might prefer a variable rate if you want to take advantage of the maximum possible savings but have the financial flexibility to make higher monthly payments and total interest should interest rates rise. You might also prefer variable rate loans because you plan to pay off your loan in a short timeframe, such as 10 years or less.

What is the main difference between these home loans and which one is more suitable for you? That depends on your personal financial situation.  

As an award winning Realtor®, experienced in working closely with buyers, I am happy to answer any questions you might have.  Reach out to me at 951-333-8065

Tags: fixed rate mortgage, adjustable rate mortgage, ARM, FRM, first time home buyer, buyers agent, mortgage loan, loan rates, mortgage rates
Share this: