Fixed Rate Mortgages and Adjustable Rate Mortgages

If you are in the market to purchase a home, there’s plenty of things to research, but the most important, and usually the first thing people consider is financing. The next thing you’ll want to do is decide between the two types of mortgages: fixed rate or adjustable rate mortgage. The main difference between the two is that fixed rate mortgages stay the same over time while adjustable rate mortgages change over time.

What Is An Adjustable-Rate Mortgage?

An adjustable rate mortgage is a loan that has an interest rate that fluctuates with the market and means the monthly payments can increase or decrease. With these types of loans, the interest is usually lower than a fixed rate mortgage at the beginning of the loan.

There’s no real way to predict the housing market so it’s important to study trends to get a better idea of when to purchase especially when considering your financing options. After the fixed rate period is over the interest rate either moves up or down based on the market index.

What Is A Fixed Rate Mortgage? 

A fixed rate loan or  mortgage is a loan that has an interest rate that stays the same throughout the life of the loan. That means it’s not going to increase or decrease so you will always know what to expect on the payment side.

Whenever you take a out a loan whether it be a fixed rate or variable rate, there will be interest. That is the amount you must pay back with the loan itself. The interest included on a fixed rate loan is calculated into the payments so that when the term of the loan is over, you’ve paid that back along with the the interest. This may be the safer route since you know nothing can fluctuate, but that safety can sometimes come with a cost. These rates can sometimes be higher than a variable rate so you can pay more over the life of the loan for that certainty of a consistent payment.

 Which One Is Right For Me?

It is important to discuss these options with your lender when you are choosing your type of loan to make sure whichever option you choose is best based on your finances and personal situation.

With an adjustable rate mortgage, some of the risk that is normally all placed with the lender is partially placed with the borrower. If the market changes and interest rates drop, the borrower benefits in the situation. On the adverse, if the market changes and interest rates increase, the lender benefits.

With the risk that can come with an adjustable rate mortgage, there is also some reward, and that reward goes to the consumer. Typically the initial payments with this type of mortgage are lower so that the first couple of years the payments are one amount, and then the rest of the term, they are at a higher amount. For example, you’ll see the rate written as 2/28 or 3/27 where the first number is the fixed rate term and the second number is the variable adjustable rate.

Reach Out Today!

If you are thinking about applying for a  loan and have questions, we would love to help guide you through the process. Don’t hesitate to reach out to Family First Mortgage in Lafayette, LA today!