Buying a home is a common rite of passage for most people. Settling down, creating stability, establishing a sense of community and responsibility are a just a few of the benefits of owning versus renting. Another benefit is the investment, and the equity that a home can provide. However, when it comes to the financing options – what should you do? When considering mortgage options, which can aid you as the buyer, here are a few questions to ask yourself:
- Am I interested in a low payment?
- Do I intend to live in this house for more than 5 years?
- Is a 30 year commitment unrealistic?
Electing to take an adjustable rate mortgage (ARM) over a fixed rate loan is one of the financing options that you will be presented. ARMs tend to carry lower mortgage rates up- front and, therefore, lower monthly mortgage payments. However, the word adjustable is in the very title, so it stands to reason that the mortgage payment will fluctuate as the rate adjusts over time. While this might seem a bit scary, since you aren’t sure what the stock market will do tomorrow, it could still be a feasible option if you are not expecting to commit to your current home for more than 5 years. In other words, why pay a higher, set rate, when you know that you are vacating the home in 5 years or less. However, as the loan adjusts, be prepared for the possibility of a much higher rate down the road.
On the other hand, if you plan on making a lifelong commitment to your property, and are more comfortable knowing what each monthly installment will cost you ahead of time and without variance, then a conventional fixed rate mortgage is most likely what you will feel more at ease with. While the initial rate may be slightly higher than the initial rate on an adjustable mortgage, the comfort of knowing is sometimes the best decision in a hectic life where most things are always changing.
As in any financial decision, it is best to consult an authority on mortgage lending. Find a mortgage loan expert who can explain the different options available, any risk factors involved, and the best solutions for you.