Saving A Fortune With Your Mortgage

Saving a​ Fortune With Your Mortgage
Life is​ full of​ choices.
The type of​ mortgage you​ take out can make a​ great difference to​ you.
Paper or​ plastic? Car or​ SUV? Rent or​ buy? Perhaps one of​ the​ biggest decisions you​ will ever make is​ whether to​ take a​ fixed-rate or​ adjustable rate mortgage.
So what exactly is​ the​ difference between these two types of​ mortgages? With a​ fixed rate mortgage,​ your payments are the​ same for the​ life of​ the​ loan.
Regardless of​ inflation or​ other economic factors,​ your mortgage payment will never change .​
Many people choose a​ fixed rate mortgage because of​ the​ stability it​ offers.
With an​ adjustable rate mortgage,​ ARM,​ your payments will vary depending on​ the​ interest rate .​
Lenders favor this type of​ mortgage because the​ interest rate of​ the​ mortgage changes based on​ other economic factors.
Even with ARMs,​ there is​ an​ initial period in​ which the​ interest rate is​ fixed .​
After that period the​ interest rate will adjust a​ periodic basis,​ usually annually.
In nearly all cases,​ the​ initial principal and interest payments on​ an​ adjustable rate mortgage are lower than that of​ a​ fixed rate mortgage .​
This is​ the​ aspect of​ the​ ARM that leads many homebuyers to​ choose this type of​ mortgage over the​ alternative.
If you​ can get a​ lower monthly payment with an​ ARM for as​ many as​ ten years,​ then the​ ARM is​ the​ best choice,​ right?
Not necessarily .​
Before you​ decide to​ choose the​ Arm based solely on​ the​ initial monthly payments,​ consider the​ future.
There is​ a​ good chance that interest rates could increase once the​ initial fixed period of​ the​ ARM expires.
If this happens will you​ be able to​ afford the​ monthly payments on​ the​ loan? Of course,​ this depends on​ your current job,​ the​ length of​ time you​ plan to​ remain at​ that job,​ and the​ likelihood of​ raises in​ the​ future .​
Many people’s homes end up in​ foreclosure because they were unable to​ make their mortgage payments when interest rates increased .​
You should assess the​ risk of​ this happening to​ you​ before choosing one type of​ mortgage or​ the​ other.
How long do you​ plan to​ remain in​ the​ home? If it​ is​ less than five years,​ then an​ adjustable rate mortgage is​ the​ best choice .​
Overall you​ will end up paying less with an​ ARM in​ that period of​ time than you​ would if​ you​ chose a​ fixed rate mortgage .​
On the​ other hand,​ if​ you​ intend to​ remain in​ the​ home more than five years,​ a​ fixed rate mortgage is​ definitely worth considering.
The benefit of​ a​ fixed rate mortgage comes with the​ fact that the​ payments are fixed over the​ life of​ the​ loan .​
Because of​ this,​ there are never any surprise interest rate increases; you​ always know how much you​ are going to​ pay .​
The stable mortgage payments make it​ easier for you​ to​ budget from one year to​ the​ next.
On the​ other hand,​ higher incomes are generally needed to​ qualify for a​ fixed rate mortgage because the​ interest rate is​ higher .​
The lender needs to​ be sure you​ can afford the​ payments .​
Not only that,​ if,​ in​ the​ future,​ interest rates decrease significantly,​ you​ will have to​ refinance to​ avoid overpaying for your home.
Understanding the​ benefits and the​ drawbacks of​ each type of​ loan is​ the​ best way to​ make the​ best decision for you.

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