Mortgage: Finding The Right Type

Mortgage: Finding The Right Type

Mortgage: Finding The Right Type

There are two main types of mortgages; fixed and adjustable. Since the goal is to pay the least amount of interest, it is important to decide whether you want a fixed mortgage loan or an adjustable mortgage loan since both types involve different types of interest rates. Therefore, the interest rate itself will either be fixed or adjustable. So, how do you decide which is the best one for you?

A fixed interest rate does not change during the course of the term unless you refinance. If you are able to get a low interest rate from the start, you may want to consider getting your interest rate fixed. An adjustable interest rate can fluctuate as the current market's interest rate fluctuates. However, an adjustable interest rate does not necessarily change along with the housing market's interest rate. Even if the housing market's interest rate is very low, it does not necessarily mean that your adjustable interest rate will also be that low. Therefore, your adjustable interest rate could also go up really high even though the housing market's interest rate remained the same.

An adjustable mortgage loan will often be tempting since you can generally start off with lower interest rates than you would if you got a fixed interest rate, but with an adjustable rate, it could change to be much higher after a short period of time. Lots of times, the adjustable rate is fixed for the first few years, making it seem even more tempting, but then it could change to the unknown after that. Many times however, adjustable rates have caps on them, meaning that they will never go higher than a certain interest rate. If the cap on the adjustable rate is not high, and the first few years are fixed, it may be worth looking into getting an adjustable interest rate.

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