When you’re borrowing money to buy a home, you’ll have to decide whether to go with a fixed-rate or variable-rate mortgage loan. Both have their pros and cons, and what you select will impact your monthly payments. Understanding the differences between these financing options will help you make the right decision for your family. To help you with this, here’s more information about each and for whom they may work best.

Fixed Rate vs. Variable Rate Mortgage Loans

Fixed Rate 

A fixed-rate mortgage loan allows you to lock in the same interest amount for the entire period. Typically, this will be 30 years, but you may also choose a term of 20 or 15 years. With this type of mortgage, you will know exactly how much to budget for every month, and if interest rises, you don’t have to worry about your installments increasing. The biggest disadvantages are that these loans have a higher starting interest rate, and if rates go down, you won’t be able to benefit unless you refinance. 

Variable Rate 

By contrast, the interest in variable-rate mortgages can fluctuate throughout the term of the loan. This will make it more difficult to set a budget, as you won’t know how much to put aside each month for your payment. Payments may also get higher as time goes by. However, starting interest rates are generally low, and if they decline, you may enjoy lower payments for a few years.  

How to Choose 

To determine which kind of mortgage you should choose, you must consider a few different factors. Since they take many years to complete, fixed-rate mortgages tend to be more appealing to home buyers who plan on staying in their residence for a while. If you’re on a tight budget and need a consistent payment to stay on track with your finances, a fixed-rate loan may also help you with that. However, if you want to get ahead on payments while interest is low, a variable-rate mortgage will allow you to do so. 

If you want to secure a mortgage loan at a competitive rate, contact the professionals at North Jersey Federal Credit Union. For more than eight decades, they have been helping residents throughout Passaic County, NJ, find the best financing solutions for their budget and goals. Whether you’re a first-time home buyer or someone trying to refinance an existing mortgage loan, they will guide you through every step of the process. Visit them online for more information about their home loans, or call (973) 785-9200 to discuss your needs.