What are the benefits of each?
A Place to Start Some questions to keep in mind.
First, ask yourself these questions in deciding whether to choose an ARM or a fixed interest rate loan:
1 - How long do you plan to own your new home?
Do you anticipate a job change? Do you plan to move up to a larger home in a few years? If yours is a "starter home" or a "transitional home," an ARM could save you money in the short term. By the time your interest rate adjusts and has a chance to go up, you'll probably have sold your home. On the other hand, if you plan to own it for the foreseeable future, and interest rates are currently reasonable, consider a fixed rate loan.
2 - Highest rate possible
If you're still in the home when the interest rate adjusts, what is the maximum monthly payment you might have to pay under the loan terms? Is your income likely to rise enough to cover the payments? Are you willing to take that gamble?
3 - Other debts
Will you be taking on other sizable debts, such as a car or school tuition, in the near future? This will affect your decision of how much you are willing to invest into a home. Although you can leverage a bigger home purchase now with an ARM, don't put yourself in a bind later. You could be facing larger home payments with less money left for other needs.
Compare the Types of Fixed and Variable Loans
There are differences.
Be Sure to Compare Apples to Apples.
One of the most common mistakes homebuyers make is comparing dissimilar loans. Fixed rate and variable-rate loans have drastically different costs and payment structures. So you'll need to compare fixed rate loans with other fixed-rate loans, not with variable-rate loans.
Let's review the types.
Now, let's look at the Fixed-Rate Loan. This is the "Old Reliable."
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