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Do You Know About Adjustable Mortgages?

You might have already known that there are 2 types of mortgages to choose from

. These are the fixed and adjustable-rate mortgages.

After dealing with the calculation and research, it is time to take action and sign up. But are you sure you are making the right decision before signing up for a 30-year contract?

You have to ask yourself whether you are able to take financial risks.

What do you mean by financial risks? For example, if you have a job where you have to borrow a lot and your income might not be stable or constant, then you have to decrease your risk takings. In this case, you should always stay with a fixed-rate loan. You will never know when the interest rate for your home might suddenly shoot up in a certain month, in which your income goes bonk.

Initial low interest rates for adjustable-loan rates might seem attractive

But the truth is, you should not make this a single factor when deciding. You should only be confident about choosing the adjustable type if you are sure your income will rise in the coming years. This is because homes with adjustable interest rates will indefinitely be more expensive to pay for due to the nature of interest fluctuations. Therefore, the advice is to stick with fixed-rate mortgages which you can afford.

Things to consider before going for adjustable mortgages

In future, expenses may vary and most likely go up. Have you ever thought of inflation? What about starting a family? As time progresses, it is more likely that you will spend more and more.

The rule of thumb is this

If you cannot pay the maximum payment on an adjustable-rate mortgage, do not sign up for it at the first place.

Ignoring the rule will put you in the danger of losing your home, because you cannot afford to pay for it

What about stress? If you think you can handle the stress with unpredictable, fluctuating interest rates and you are able to take risks, then you should consider the adjustable-loan mortgage.

Nature of the adjustable-loan mortgage

It can fluctuate a lot. But there is a limit to its fluctuations. This limit is also known as a cap. For example, the cap for one year is 2 percent and 6 percent over the life of the loan.

Conclusion

If you have a good and reliable financial cushion to rely on, then you can consider the adjustable mortgage. No one can predict the future. You will never know when crisis will hit.

by: Lisa Wash
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Do You Know About Adjustable Mortgages? Qingdao