For many people, home ownership is the most important asset on their financial portfolio.
How to finance the purchase of a home is among the most significant economic decisions households will face. The typical choice clients have to decide on is whether to go for a Fixed Rate Mortgage (FRM) or Adjustable Rate Mortgage (ARM).
There are a lot of reasons to choose a fixed rate mortgage over an adjustable rate mortgage, and vice versa. The decision will depend on your individual risk tolerance and your short and long term financial goals. Each choice has its benefits and an informed buyer will need to understand how both loan devices operate in order to make the best choice.
FIXED RATE MORTGAGES
These are mortgages for which the interest rate is fixed for the duration of the loan. They are available for different periods, also known as terms. If you want to know what your payment will be for the next several years, a fixed rate mortgage is a sensible option for you. If you are a homebuyer with a minimal down payment and with a smaller income, you should likely take this route. Similarly if you are among those who are using equity in their home to consolidate higher interest rate debt, certainty in your payment is a good idea.
ADJUSTABLE RATE MORTGAGES
These are mortgages for which the interest rate can vary over time. With adjustable mortgages, the homeowner assumes some of the long term interest rate risk which is fully assigned to the bank with a fixed rate loan. If predictability of mortgage expenses is less important for you, a variable rate mortgage may make sense. A variable rate will typically appeal to a homebuyer who has a significant down payment and lots of flexibility in their budget. The attraction of a variable rate mortgage is the potential saving of the difference between the fixed and the floating rate.
Whether you are buying, renewing, or refinancing a mortgage, spend time with a qualified First and Second Mortgage broker to fully explore the pros and cons of your available mortgage options. Contact us to schedule an appointment with one of our mortgage specialists today. 403-543-0927 – 18664051228