Coldwell Banker Residential Brokerage
Diana Gould, GRI, Coldwell Banker Residential Brokerage
Email: [email protected]

Mortgage: Fixed vs. Adjustable

by Diana Gould, GRI 01/03/2021

Photo by NeONBRAND on Unsplash

Once you are ready to buy a house, you need to check your finances to determine how much you can put down, and how much you can afford to pay on a monthly mortgage. Knowing this helps you determine how much house you can afford. However, your interest rate is going to play a huge part in this figure. You can get a mortgage with a fixed rate or an adjustable rate. Typically, adjustable rates start out lower than fixed rates, which could help you if you want to save some money – for a short time.

Fixed Rate Loan

Lenders base a fixed rate on several factors, including the market and your credit score. Once you accept the loan and close on it, that rate will never change. This is a benefit if you don’t like surprises. However, with a fixed rate, if the interest rates go down, you have to refinance to get a lower rate. The good thing is that when rates increase, you don’t have to do anything — your rate stays the same.

Adjustable Rate Loan

With an adjustable rate loan, the interest rate follows the market. Lenders use several indexes to determine what the rate will be. In most cases, the rate is fixed for an introductory period. For example, in a 5/1 ARM, the rate is the same for 5 years, then changes once every year for the balance of the loan. Often the interest rates for an adjustable rate loan are lower than the fixed rate interest rates. However, you could end up paying more interest over the life of the loan if the rates continuously increase each time the rate changes.

Considerations for Adjustable Rate Loans

Before you agree to an adjustable rate loan, be sure to locate key pieces of information:

  • How high can the rate change each time it changes?

  • What is the highest rate the rate will ever be, if it gets to the maximum rate?

  • What is the lowest rate the rate will ever be, as long as rates continue to drop?

  • Who long is the introductory period where the rate doesn’t change?

  • What is the date of the first interest rate change?

  • How often does the rate change?

  • If your lender’s answers are satisfactory, then you need to figure out what the payment would be at the highest rate. If you believe you can still afford the payment at the highest rate, then you might consider an adjustable rate mortgage.

    When an Adjustable Rate is More Beneficial

    An ARM is more beneficial in certain situations, including:

  • If you plan on refinancing before the rate increases;

  • If interest rates are consistently going down, or staying steady; and

  • If you are buying an investment property that you do not plan to keep.

  • Be sure to consider all the different scenarios before you agree to an adjustable rate — if the rate raises significantly and you can’t afford the higher mortgage payments, you could lose your home.

    About the Author
    Author

    Diana Gould, GRI

    Diana Gould is truly dedicated to providing exceptional, professional and comprehensive real estate services to her valued clients. She is very astute and highly skilled in the Acquisition and Marketing of Residential and Distinctive Luxury Properties. From Greenwich to Trumbull, Diana’s intimate knowledge of the distinctive communities of Lower Fairfield County is invaluable. In helping her clients to find their dream home or sell their special residence; Diana clearly distinguishes herself with proven results as she brings her client’s real estate dreams to life! As a Global Luxury Specialist, Diana excels at providing insightful, comprehensive guidance and marketing applications that produce results. Due to her extensive background as an CPA, she takes great care to educate and advise their clients with valuable analytical information and an informed and in-depth understanding of the current real estate market. When working with sellers, she implements effective and resourceful marketing strategies that clearly accentuate each property’s specific features. Skillfully taking every measure to position the seller’s property to stand out in the market place, she designs a beautiful presentation that incorporates professional photography, refined staging services and extensive visibility on multiple internet sites. Regardless of the time and effort it takes, when working with buyers, she works tirelessly to identify key opportunities that meet their lifestyle requirements. In serving her clients just newly relocating to the area, she is extremely diligent in seeing that their needs are thoroughly attended to and provides them with an insightful perspective into each community within the region. Diana’s clients trust in her integrity and insight and value her timely guidance and expertise in addressing all aspects of the transaction with professional competence. She is very thorough in providing constant communication about each important detail of the transaction and is always extremely attentive, accessible and responds promptly to her clients. Her attention to detail, consistent follow through and determination to indulge her clients with first class service sets her apart. She always strives to negotiate the best terms for her clients and when met with a tough challenge she is very creative, strategic and skillful in working through the issues. Diana ultimately ensures that each client receives outstanding counsel and exceptional representation in her efforts to accomplish their personal real estate goals. Diana further distinguishes herself with the following designations: Graduate Realtor Institute (GRI) and Certified Relocation Specialist (CRS) and Smart Home Certified.