HOMEBUYER TIPS - Choosing Between Variable and Fixed Interest Rates

HOMEBUYER TIPS - Choosing Between Variable and Fixed Interest Rates

From choosing a real estate agent to finding the right home, the process of getting a mortgage is rife with many different choices as well. If you're wondering about the differences between variable and fixed interest rates and how they can benefit you, we have some very basic advice for you. While what will work best for you depends on your financial flexibility and market knowledge, we ALWAYS recommend speaking to a professional for more details on both. 

The Basic Details on Fixed Rates

For many homeowners new to the market, the stability of a fixed rate is comforting because the interest rate will be set for the length of the loan period. This means your monthly mortgage payment will be the same and you will not be required to adjust your budget each month. While knowing your rate can offer financial security in a fluctuating market, if rates are high when your loan is originated, the loan can actually cost you more money in the end, depending on how the rates change over time. 

Are Variable Rates (ARMs) a Good Option?

A fixed rate can provide security but, a variable rate is much like it sounds and will fluctuate with the market interest rate. This means that your monthly mortgage payment will not be fixed and in the event of market increases or decreases, your mortgage payment may change markedly. While the benefit of variable rates is that they can actually end up costing less down the road, they can be a burden for those who do not have market knowledge and are going to feel the stress of changing rates. Adjustable Rate Mortgages are good options for those who KNOW they won’t be living in their homes longer than the original fixed term. For example, if you have a 5-year ARM, if you are certain that you’ll be moving in 2-3 years (or less than 5), an ARM is an excellent option as those rates are typically considerably lower than fixed rates.

Choosing Between The Two

While it's expected that interest rates will rise in the coming years, there are still no guarantees that variable rates will end up costing more or less than a fixed rate. This means that if you are comfortable with the uncertainty/variability, a variable rate may be a great option for you. However, if consistency is more along the lines of what you're comfortable with, you may want to choose a fixed rate. If you are struggling with financial stability month-to-month, a variable rate may be more economical over time but, a fixed rate will offer the security of knowing your costs in advance.

It is important to have a full understanding of your local real estate market and your finances before making a decision. If you're currently in the market for a new home, let’s talk! I’ll put you in contact with one of our preferred mortgage professionals who can give you further, more specific mortgage options & details, allowing you to make an informed decision. 

© Debe Maxwell | The Maxwell House Group | (704) 491-3310 | CharlotteBroker@icloud.com | HOMEBUYER TIPS - Choosing Between Variable and Fixed Interest Rates