Finding a cost-effective mortgage can seem so complicated, but it doesn’t have to be! When choosing between fixed and adjustable rate mortgages, here are a few tips to help you decide which is right for you.
Interest is Key
According to the Consumer Financial Protection Bureau, “…for fixed rates the interest rate is set when you take out the loan and will not change. With an adjustable rate mortgage, the interest rate may go up or down.” This means that an adjustable rate mortgage (ARM) will often start at a lower interest rate. The lower rate can last from months to years, eventually “adjusting” and likely making your monthly payments higher.
The Wild Card: Adjustable Rate Mortgages
ARM’s provide you with variety. But if you choose an ARM, it is vital that you know your mortgage well. Look over the following list for a few details you may want to consider:
- Find out how often and how soon the interest rate is set to adjust.
- Look for caps: how high or low is the interest rate allowed to go?
- Know whether your budget will be able to handle your rate at its highest cap.