Should I obtain a fixed or adjustable rate home loan?
Two of the most popular types of home loans include fixed rate loans and adjustable rate loans, or ARMs. Fixed rate loans have a steady interest rate over a specific period of time, usually between 15 to 30 years. You know exactly what your principle and interest payment for the mortgage will be each month for the entire duration of the loan. Adjustable rate loans reset at different times throughout the loan and can result in fluctuations in the monthly mortgage payment.
Not sure which type of loan is the best choice for you? Use this checklist and then find a lender in your local area.
1 Do you anticipate a substantial increase in income or earnings over the next few years? If so, then an adjustable rate might be a good choice.
2 Do you anticipate a stable or even declining income in the next few years? Is your job or your spouse’s career subject to downsizing? Is anyone nearing retirement age? If so, a fixed rate mortgage might be a good choice.
3 Do you intend to live in the home for less than five years? If so, an adjustable rate mortgage might work for you.
4 Do you intend to live in the home for more than five years or are you not sure how long you will remain in the home? In that case, a fixed rate mortgage might be preferable.