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Fixed, Adjustable, or Hybrid ARM – which rate should you choose?

According to the statistics, only 36% of houses were sold with all-cash offers, 64% were bought thanks to mortgage loans. And if you’re about to buy your property using a mortgage loan – you should know whether a fixed, adjustable, or hybrid AMR rate is best for you.

The situation with the mortgage is the same as with the home itself – it depends on your unique situation and needs.

Fixed-rate mortgage

Well, a fixed rate means that your mortgage interest rate won’t change over the loan term. Also, this is the most common type of mortgage.
With this option, there will be no variability in the amount of interest you should pay, which is obviously suitable for cash flow planning purposes.
Even if the situation on the market will change and the mortgage rates rise – your rate will stay locked in.

A fixed rate is an excellent option for homebuyers with a fixed income, limited budget, or for individuals with zero tolerance for financial risks. A fixed mortgage rate gives you calm because you know what you are getting into and whether you can afford the monthly payments.

If there are pluses, there are minuses too.
You should keep in mind that interest rates in the mortgage market won’t rise just like that. And if mortgage interest rates go down – yours will stay the same. So you can stay with a mortgage that’s more expensive than the new loan option.

Of course, there’s a possibility to refinance. And that’s a fantastic option, and billions of homebuyers used it and won. But it’s not always worth it, so this isn’t a foolproof solution.

No matter what minuses are, the experience shows that Americans like to feel this stability of having the same monthly payments for the entire loan term. That’s why this option is trendy.

Adjustable-Rate Mortgages (ARMs)

An adjustable-rate mortgage (also known as ARM) is a loan with an interest rate that adjusts periodically as market interest rates fluctuate. The amount of monthly principal you owe on loan doesn’t usually change, except as you pay it down. The term, or length of the loan, doesn’t adjust either.

The relative interest rates for this option are higher the more extended the fixed-rate term of the loan. Be sure to read the mortgage terms; it’s essential to understand when and how the interest rate may change over time and if it will change at all.

You may think that Adjustable Rate is all about risk and potential reward. But the terms of your contract can help you calculate all risks, and you will free yourself under control of the mortgage interest rate gods.

Who may find this option beneficial?
First thing first – the initial interest rate of an ARM is lower than a fixed-rate mortgage. Therefore, it may help you save more money on your loan.

Homebuyers with a very flexible budget may find this option worth the risk of a rising interest rate. Also, you better go for ARM if you don’t plan to live in the house for a long time.

Hybrid Adjustable Rate Mortgages

Just like it was mentioned above that fixed-rate mortgages and ARMs are the most common, but there are also hybrid ARMs that may be considered as a “best of both worlds” solution to some homebuyers.

What are hybrid ARMs? It basically starts with a fixed interest rate for a particular period before converting into a traditional ARM contract. Keep in mind that the longer the initial term will be – the higher the interest rate will rise.

Who may find it beneficial?
This option works well for those homebuyers who expect to earn a higher amount of money in the future but want to find a way to secure a more affordable mortgage payment in the near term.

Worth mentioning that Hybrid AMR is very common when people upgrade from their first home to their second home. The initial idea is that you take advantage of the lower temporary fixed rate until you can refinance into a fixed-rate mortgage at a later date.

Do you need more information about which rate option will be the best for you? Don’t hesitate to call our specialist and get professional advice.

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