This is a question that keeps coming up when customers start looking at purchasing or refinancing their home. If you look at the average 30 or 15 year mortgage, it seems that the better mortgage depends on the type of customer.
The best mortgage is one that fits in your long term budget, won’t use up too much of your monthly income, and gives you a sense of control over your home so you don’t end up house rich and cash poor. Let’s look at the basics.
Fixed rate gives you stable interest rate and predictable payments
A fixed rate mortgage gives you sense of control because you know what your interest rate will be for the next 30 years. The only concern is that the market rate might go down at some point in the future and you will end up paying more than the current interest rate. You can change this by refinancing the loan to lower your payments and get a lower interest rate.
Adjustable gives you ability to change up or down with the market index
An adjustable rate mortgage allows you to play with the market rate knowing that sometimes you will be more than the market interest rate, and other times you will be paying slightly less. Overall, if the economy stays healthy you should feel like you made the best decision and did not overpay for your home.
So which one really is better? Depends on interest rate and personality
If you’re going to stay in your home for 30 years or more then the fixed rate loan will usually give you a better deal. As your income increases, you won’t have to worry about fluctuating payments so you can put any extra cash towards savings accounts and retirement funds. Otherwise, it depends on how you feel about your monthly payments.
If you think that you can get a better deal by playing against the market rate in the hope that you’ll end up with much lower payments at some point, then you should get an adjustable rate loan.
Talk to a financial advisor or a loan officer about your concerns before decide to get the most up to date options on both types of loans.
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Syd Johnson
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