When you begin the homebuying process, you quickly learn there are a few different options to customize a mortgage to your unique situation. It can be a little overwhelming at first, but this is a decision that should be made with the help of a mortgage professional, which will help to alleviate pressure. However, it doesn’t hurt to be informed on the different types of loans ahead of time.
Fixed-rate loans are exactly what they sound like – the rate is fixed, meaning it will not change for the entire life of your loan. The rate is agreed upon when the loan is originated, and cannot be changed. These types of loans are very common and are especially advantageous if you plan to stay in the home for many years to come. The biggest advantage to these loans is that you know the interest rate you will be paying for the entire duration of the loan.
Adjustable-rate loans are also exactly as they sound – the rate of the loan will not remain the same. Most adjustable-rate loans start with a lower rate than fixed-rate loans, and the rate may remain unchanged for a number of months or years. After that period, the interest rate will most likely increase.
Adjustable-rate loans are most attractive to first-time home buyers. A common mistake buyers make when choosing an adjustable-rate loan is assuming they will be able to refinance before the rate changes. It is never safe to assume your financial situation will stay the same, or even improve. Those changes in your financial situation could lead to different loan options, whether good or bad, being available to you in the future.
As you can see, there are obvious advantages and disadvantages to both types of loans. Different mortgages are made to benefit different people, which is why you should never rely on a friend’s recommendation, as their situation may be vastly different from yours.
The team here at Mortgage Specialists would love to help you navigate the home buying process. Ready to start the mortgage process? Our online application takes anywhere from 5-20 minutes to complete and we can have you pre-approved for a loan in just a few hours.