How Do I Decide Between Adjustable-Rate and Fixed-Rate Mortgages?
Likely the most important aspect of buying a home is finding the right loan that will provide you with good terms and doesn’t have an exceedingly high interest rate. If you’ve decided to obtain a conventional mortgage loan, you’ll find that this type of loan can be selected with a fixed rate or an adjustable rate. In order to be certain that you’ve made the right decision when selecting a mortgage loan, it’s essential that you understand the differences between adjustable-rate and fixed-rate mortgages.
What Is a Conventional Mortgage Loan?
A conventional mortgage loan is essentially any type of loan that’s not backed by the government, which is the case with FHA loans and VA loans. There are many different types of this loan that you can select from, which include conforming loans, non-conforming loans, portfolio loans, jumbo loans, and sub-prime loans. The majority of these loans are conforming ones, which means that adhere to the loan guidelines that have been established by Freddie Mac and Fannie Mae.
How Interest Rates Work With Adjustable-Rate and Fixed-Rate Mortgages
The main difference between these two types of loan options is that fixed-rate mortgage loans come with interest rates that will stay the same throughout the entirety of the loan term, which can be set to either 15 years or 30 years. On the other hand, adjustable-rate mortgages will reset at certain intervals throughout the loan terms. The initial rate that you select with an adjustable-rate loan can remain fixed for 3-10 years before being adjusted. While rates can go down and save you money, there’s also a chance that they will increase during the term of your loan.
Which Option Is Better?
In many cases, a fixed-rate mortgage will be better since your monthly payment will always remain the same. If you find that the interest rate lowers, you can always refinance your home to obtain this lower rate. Adjustable-rate mortgages tend to appeal to first-time buyers. The initial rate that you’re provided with will be lower than the one that you could receive with a fixed-rate mortgage. However, it may increase after the fixed period. To best understand which of these loan options is right for your financial situation, consider requesting the help of a loan officer in Las Vegas.