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Fixed-Rate Mortgage vs Adjustable-Rate Mortgage

By
Real Estate Agent with Coldwell Banker Realty NJ# 9483506

Over the past couple of years, mortgage rates hit their all-time lowest point. At that time, financial experts encouraged buyers to get a fixed-rate mortgage loan to purchase their properties. However, with interest rates on the rise these last few months, many buyers began looking at adjustable-rate loans instead. Which one should you consider for your next mortgage loan? It depends.

While a fixed-rate mortgage was all the rage for the last several years, rising interest rates brought adjustable-rate mortgages back into the spotlight for many home buyers. What's the difference and when should you choose one over the other?

Fixed-Rate Mortgage vs Adjustable-Rate Mortgage

Fixed-Rate Mortgage

A fixed-rate mortgage is exactly what it says: one set rate for the life of the loan. Even so, your monthly payment could change depending on current property taxes and insurance rates. But the actual monthly mortgage payment remains the same the entire time. However, lenders charge more interest for fixed-rate loans than they do for adjustable-rate loans (usually around 3/4 to 1% more) in the beginning.

Adjustable-Rate Mortgage

With adjustable-rate mortgages (ARMs), the buyer pays a set rate for a specified term (typically seven to ten years). After that, the rate changes according to the rates at that time. And they could increase (sometimes substantially) every year thereafter. This could mean a huge jump in your monthly mortgage payment. And that can be quite jarring. 

When Should You Choose a Fixed-Rate Loan?

Well, if you plan on staying in your Westfield area home for many years, a fixed-rate loan may be your best choice. Also, when rates run low (like they did for the past few years), locking in that rate makes sense. Finally, if your household budget runs pretty tight, a fixed rate makes more sense than an ARM because you do not have to worry about changes in the market affecting your mortgage payment.

When Should You Choose an Adjustable-Rate Loan?

Planning on only living in your home for two to five years? Then, the lower ARM may be the right choice. Also, since an ARM starts at a lower point than a fixed-rate mortgage, it makes it a little cheaper to purchase your home (in the beginning, at least). That may allow you to pay more toward your principal during the initial fixed-rate time period. 

Always talk to your lender before deciding which loan works best for you. When you are ready to purchase your next Westfield area home, contact me.

Property Tax Appeal Seminar

Finally, have you signed up for the 2023 Property Tax Appeal Seminar yet? It takes place at the Coldwell Banker Realty's Westfield East office on February 9th. We still have some seats available for anyone who's interested. It's provided absolutely free of charge. It will only cost you about 90 minutes or so of your time. You need to RSVP in order to reserve a spot. So, please do so today. Thank you. 

Scott Gleason, CRS at Coldwell Banker Realty – East, NJ Luxury Homes

Originally posted on my Westfield area real estate blog here: https://luxuryhomesnj.com/2023/01/13/fixed-mortgage-vs-adjustable.

Richard Weeks
Dallas, TX
REALTOR®, Broker

Great information, thanks for sharing.  I hope you have a great day.

Jan 21, 2023 03:14 AM