When it comes to securing a home loan, getting the most budget-friendly deal tops the list for most borrowers. Deciding whether to pursue a fixed rate mortgage or an adjustable loan is also a key consideration. The team of professional lending officers at Fairway Independent Mortgage Corporation in Minneapolis, MN, go above and beyond to help their clients fully understand these options. Ultimately, the goal is to obtain financing that fits the borrower’s income situation.
Here, they share how to identify the distinctions between the two mortgages:
Fixed Rate Mortgage
One of the key features of a fixed rate mortgage is that the interest rate stays the same for the duration of the loan. Depending on the loan, the term can be 15, 20, or 30 years. During this period, the monthly principal payment is fixed, meaning it doesn’t fluctuate.
Home shoppers who anticipate staying in their house for some time typically choose a fixed rate mortgage. Generally, the shorter the loan’s term, the faster the borrower can build equity. The trade-off is that the monthly payment could be a bit higher compared to a loan with a longer term.
If housing interest rates go down, the borrower can seek out refinancing on their fixed rate mortgage to obtain a lower rate. The new rate could mean lower monthly payments.
Adjustable Rate Mortgage
Commonly known as ARMs, adjustable rate mortgages set the interest rates for a certain period, usually for five or seven years. After the term expires, the interest rate can go up or down, depending on the housing market’s climate.
It’s typical for ARM borrowers to pay just the interest on their mortgage for the term of the loan to make payments more affordable. However, payments may not be applied to the loan’s principal, which is the total loan amount. Home shoppers who prefer lower payments at the initial start of the loan might choose an ARM over a fixed rate mortgage.
Some borrowers who expect to be in the home for a short period tend to go with an ARM. Others may be interested in the property only as a short-term real estate investment. An ARM can also be refinanced to a fixed rate mortgage before its initial term expires.
Fairway Independent Mortgage Corporation makes the process of choosing between a fixed rate mortgage and an ARM easy and clear. Call (952) 797-6032 to start the application process. Get a pre-approval letter as well to know just how much loan you’ll qualify for. Visit the website for more information on their wide range of residential mortgage services.