Fixed or Adjustable Rate Mortgage?


WR707994The housing meltdown of a few years ago was accompanied by horror story news headlines about “Unqualified Buyers”, “Risky Mortgage Products”, “Unprincipled Mortgage Bankers and/or Real Estate Agents”, “Disastrous Loan Products”, and the like. There was a certain amount of truth in all of these stories, and legislative steps were subsequently taken to protect home buyers applying for mortgages, dealing with real estate agents or title insurance companies and other participants in the home buying process.

I don’t want the memory of those bygone days to cloud your vision when it comes to considering an adjustable rate mortgage.   What I’m referring to is the type of mortgage that runs for the first five or seven or ten years at a fixed interest rate, then adjusts thereafter. If the interest rate differential involves a couple of percentage points below the rate on a 30 year fixed rate loan, the monthly savings can be considerable.  For example, the monthly payment on a $200,000 mortgage would be approximately $200 less than on a 30 year fixed product. Furthermore, you will be informed of the adjustment factors when you apply for your loan, so you can decide if you can live with them in the future. Even more likely scenarios exist: you may well decide to move and upgrade your housing before the fixed term of the mortgage ends, or, if not, you may decide to refinance into another mortgage product.  Finally, the terms of the mortgage when it begins to adjust may not be all that bad – so why fret needlessly!



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