Special offer

Buying Royal Oak Michigan Homes for Sale: Fixed or Adjustable-Rate Mortgages?

By
Real Estate Agent with RE/MAX Showcase Homes

As soon as you decide to buy one of the Royal Oak Michigan homes for sale you’ll be looking at loans, if not before. You’ll see balloon loans, fixed-rate mortgages, adjustable-rate mortgages and a few others. Fixed and adjustable-rate mortgages are the most common, but why and what’s the difference?

4350 Mandalay Ave Royal Oak Michigan home for sale. Click photo for more information and call Lee Morof 248-514-2640

The biggest differences are in cost and security. Fixed-rate mortgages can cost more, but have a measure of security. Adjustable rate mortgages, or ARMs, can cost less, but have less security.

As with all things, ARMs and fixed-rate mortgages have pros and cons. Here are just a few:

The Pros and Cons of ARMs
When you buy a Royal Oak Michigan home for sale with an ARM, your payments will be lower than a loan with a fixed-rate mortgage. Because the payments are lower, you can afford to buy a more expensive home. As well, ARM payments are based, in part, on interest rates. When interest rates fall, your payments go down.

The cons of adjustable-rate mortgages are just as big as the pros. For example, due to the basis of interest rates, you can end up having a higher mortgage payment, if interest rates rise. If rates rise sharply, a 6% ARM can turn into an 11% ARM within four years. Another negative is that borrowers can be confused because ARMs aren’t easy to understand. A shady mortgage company could neatly trap them.

The Pros and Cons of Fixed-Rate Mortgages
With fixed-rate mortgages, your payment stays the same whether interest rates rise or drop. This makes budgeting easier and is a plus when interest rates rise. However, homeowners with fixed-rate mortgages have to refinance if they want to take advantage of dropping interest rates.

Likewise, because the payment never changes, fixed-rate mortgages cost more. Mortgage lenders don’t offer rate breaks on fixed-rate mortgages. The other con, which may be a big one to some, is that fixed-rate mortgages don’t vary from lender to lender. With adjustable-rate mortgages, the lenders are flexible and can customize the loan to your needs; this isn’t true with fixed-rate mortgages.

The biggest question to ask yourself when considering an ARM or fixed-rate mortgage is, “Can I afford my home if interest rates spike?” You could start paying $875 a month, and, with a quick rate rise, end up paying $1,514 within four years.

When considering which type of home loan to use for buying a Royal Oak Michigan home for sale, don’t be afraid to ask a lender to explain the pros and cons of each type in depth. Don’t ever consider signing the contract if you aren’t sure what you’re signing.

If you’re looking for a great home to buy, I can help. Call me at 248-514-2640 or email me at info@NorthWoodwardHomes.com for more information.

Posted by

Lee Morof
Associate Broker/Attorney
RE/MAX Showcase Homes, Birmingham, Michigan
www.NorthWoodwardHomes.com
Call:  248-514-2640

Comments (0)