Fixed Vs. Adjustable Rate Home Mortgage Loan by:Alan Lim
Getting a home mortgage loan but confused which particular type to get
? Read about fixed and adjustable rate mortgages through this article.If you are getting yourself a home mortgage loan, you will most likely encounter a phase where you are torn between choosing a fixed rate or an adjustable type of mortgage. No one can really say that one loan is better than the other. The choice you make is dependent on a number of factors which may include your interest rate outlook, your budget, the number of years you intend to stay in your home, and how much risk you can tolerate. Let us look through these two types of mortgage loans so you can determine which among the two is best for you.
A fixed rate home mortgage loan (FRM), as its name itself suggest, involves loans whose interest rates remain the same all throughout the lifetime of the mortgage. They generally cost more to compensate for the lesser risk and the greater comfort involved. If the current interest rates are low, an FRM will prove to be a good choice as you will be assured of locking in at a low interest all throughout your loan term.
On the other hand, an adjustable rate home mortgage loan (ARM) is that whose rate fluctuates as the interest rates in the market rise and fall. ARMs are given initially cheaper than FRMs since they involve greater risk. They are a great option if the current interest rates are high and you foresee them to lower in the coming years. If you know that you will stay in your home for a relatively short period, you can get a good deal with an ARM.
The downside of getting an adjustable home mortgage loan is that you can run a real risk of having to pay more if interest rates rise sharply. This means that you will need to pay more in monthly payments. The rate of your ARM loan varies depending on your loan agreement terms. Some rates change as frequently as three months, while others change once a year or every three years. ARMs generally come with a rate cap, which limits the amount by which the lender can raise their rate. The cap is usually set to 2% meaning that the rate increase should only be a maximum of two percent for a given adjustment period.
Because of its stability and lesser risk, FRMs are understandably more popular. Even if they come more expensive, getting a fixed rate home mortgage loan will enable you to easily manage your monthly budget so you can have better control of your finances. It is also less risky since you always have the option to refinance in case interest rates drop uncontrollably. Conversely, although ARMs can be risky and confusing, there are good deals provided by many lenders which are actually better than FRMs.
The type of home mortgage loan you should choose depends on various factors. It all boils down to how open you are with taking risks. To help you figure out which one is best, you can try to imagine your worst and best case scenarios. You can calculate and compare your options and determine which one can give you the best deal possible.
About the author
Alan Lim
Looking for ways on how you can have a financially stable future? Visit us at http://www.homemortgageloan-refinance.com now. We will help you make all the right decisions and guide you on how you can effectively handle your finances. Determining The Best Time For A Home Mortgage Refinance by:Alan Lim How To Get The Most Favorable Home Loan Rate Deal by:Alan Lim Guide To Refinancing Through A Home Equity Loan by:Alan Lim Getting The Best Home Loan Rate Through Refinancing: Reduce Payment Or Shorten Loan Terms? by:Alan Lim Looking For The Right Home Mortgage Loan by:Alan Lim Are You Qualified For A Home Loan Refinance? by:Alan Lim Important Information On Home Loan Refinance by:Alan Lim Top 5 Benefits Of Home Mortgage Refinance by:Alan Lim Significant Variables That Can Affect Your Home Loan Rate by:Alan Lim The Essentials Of Home Loan Refinance by:Alan Lim Home Refinancing Is More Than Just About Interest Rates by:Alan Lim The Benefits Of Home Refinancing Online by:Alan Lim Home Loan Options For Those With Bad Credit by:Alan Lim