When shopping for a mortgage, homeowners often debate between going with a fixed-rate mortgage or an adjustable-rate mortgage. In fact lately homeowners have been choosing adjustable-rate mortgages as a means to qualify for a home they probably wouldn’t be able to afford with a traditional fixed mortgage.
Aside from the lower monthly payments adjustable-rate mortgages afford, they can be a smart choice if you only plan on living in the property for a short period, or if you plan on flipping the property. For example, if you are buying your first home, but plan to move or upgrade to a better home as you start a family, an adjustable-rate mortgage might be the best option.
An adjustable-rate mortgage is typically a wise choice when interest rates are declining, although it should be known that continually declining interest rates never last much longer than a five year span, and with the average mortgage carrying a 15 or 30 year term, there’s a good chance interest rates will rise again and you’ll have to refinance at a higher rate.
While an adjustable-rate mortgage provides financing at a discount, it comes with greater risk, especially in today’s unsteady market. And if you really plan on paying off your mortgage, a fixed mortgage is the best option. Remember, refinancing your mortgage resets the amortization schedule, and you’ll go back to paying largely interest and very little principal for the first 10-15 years of the new loan.
Buying a property is a major investment and one that takes preparation and foresight. You should always plan several years in advance when buying a home, as life changing events can significantly affect your financial situation. Never choose an adjustable-rate mortgage just to qualify for a loan. If you can’t qualify for a loan at the fixed rate, consider holding off or buying a cheaper property.
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