Use A Mortgage Calculator To See If A Fixed Rate Is Always Better Than An ARM Rate
Filed Under Refinance
There’s a lot to take into consideration when looking at current interest rates because it’s possibly a decision that you’re making for the next 30 years. The two basic mortgage loans are a fixed rate mortgage and a ARM rate, or adjustable rate mortgage. One isn’t better than the other, but they are better for your situation compared to someone else’s.
You can use a Mortgage Calculator to determine the best monthly payment available. All the different types of loans have different interest rates and different factors to take into consideration.
A Fixed Rate Mortgage is the most popular loan available. It’s an interest rate that stays the same over the course of the loan no matter what. If you get a 5% fixed rate and interest rates shoot up to 10% you still only have to pay the 5%. Also, if you get a rate of 15% and interest rates go down to 6% you can refinance for cheap and save a lot of money on your monthly payment. That’s why it’s the most popular.
An ARM Rate mortgage is the next level up in the risk category. You might see something like 3/1 year ARM rate. Let’s say you can get 4.50% which is better than the fixed rate of 5% so it looks more attractive from the start. Well, the “3″ in the 3/1 means that the 4.50% stays the same for 3 years no matter what. Then it adjusts up or down at a maximum of 2% with the new current interest rates. So if the new interest rate is 6.0% then yours will jump 1.50%. You should use a free mortgage calculator to see that it’ll increase your monthly payment by a lot. Then the “1″ in the 3/1 means after the 3 years go by, the interest rate only stays the same for 1 year at a time. It could be a lot of added pressure to the already high stressed home buying experience.
ARM rates are a great idea when interest rates are high, like 20 years ago when the were in the teens. The odds are higher that they will drop because they’re abnormally high. When rates are this low however, you’re much better off choosing the fixed rate.
Sometimes people only plan to own for 2-3 years when they’re buying a home. Then you can go after the 4.50% for 3 years because the interest rate wont change over that amount of time. Other than that situation, I don’t see any reason to get an ARM rate in this economy.
I have a <a rel="nofollow" target="_blank" href="“Mortgage”>http://www.thefreemortgagecalculator.com/””>Mortgage Calculator on my website that you can use to figure out situations just like this one. There are many interest rates and mortgages available, so you should take advantage of the accordingly to make sure you get the best <a rel="nofollow" target="_blank" href="“Monthly”>http://www.thefreemortgagecalculator.com/””>Monthly Payment.
