Fixed Rate Mortgage vs. Adjustable Rate Mortgage

The most basic distinction between types of mortgages that are available when you're looking to finance the purchase of a new home is how the interest rate is determined. Essentially, there are two types of mortgages - fixed rate mortgage and an adjustable rate mortgage. If you choose a fixed rate mortgage, the rate of interest that you are paying on your mortgage remains the same throughout the life of the loan no matter what general interest rates are doing. In an adjustable rate mortgage, the interest rate is periodically adjusted according to an index that rises and falls with the economic times. There are advantages and disadvantages to either, and no easy answer to 'which is better, a fixed rate mortgage or an adjustable rate mortgage?

The main advantage to a fixed rate mortgage is stability. Since the interest rate remains the same over the entire course of the loan, your monthly payment is predictable. You can count on your monthly mortgage payment to be the same amount each month. On the minus side, because the lending institution gives up the chance to raise interest rates if the general interest rates rise, the interest on a fixed rate mortgage is likely to be higher than that of an adjustable rate mortgage.

A fixed rate mortgage loan makes the most sense for those that are going to settle into their home for many years. While the initial payments may be larger than with an adjustable rate mortgage, stretching the payments over a longer period of time can minimize the effect on your budget.

An adjustable rate is one that is adjusted periodically to take into account the rise or fall of standard interest rates. Generally, the adjustable term is annual - in other words, once a year the lending company has the right to adjust the interest rate on your mortgage in accordance with a chosen index. While adjustable rate mortgages make the most sense in a situation where interest rates are dropping, though it's dangerous to count on a continued drop in interest rates.

Lenders often offer adjustable rate mortgages with a very low first year 'teaser' interest rate. After the first year, though, the interest rate on your mortgage can increase by leaps and bounds. Even so, there are limits to how much an adjustable rate can actually adjust. This is dependent on the index chosen and the terms of the loan to which you agree. You may accept a loan with a 2.3% one year adjustable rate, for instance, that becomes a 4.1% adjustable rate mortgage on the first adjustment period.

Finally, there's a new kind of loan in town. A hybrid between adjustable rate mortgages and fixed rate mortgages, they're known as 'delayed adjustable' mortgages. Essentially, you lock in a fixed rate of interest for a number of years - say 3 or 7 or 10. At the end of that period, the loan becomes a 1 year adjustable rate mortgage according to terms set out in the agreement you sign with the mortgage or financial institution.

Joseph Kenny is the webmaster of the loan information sites http://www.selectloans.co.uk/ and also http://www.ukpersonalloanstore.co.uk.

---

Construction Loan Basics

It might not be too big of an exaggeration to... Read More

What is an Interest Only Mortgage?

An Interest Only Mortgage is one where the repayments are... Read More

The Mortgage Loan Application Online - Save Time & Money By Applying On The Internet

"You can save time and money by applying for a... Read More

Mortgage Loans For People With Adverse Credit - How Much Should You Borrow

"How much should you borrow?" is a question people with... Read More

Mortgage Information for the First Time Homebuyer

Inflation in the United States is increasing rapidly and home... Read More

What is a Mortgage?

A mortgage is a loan, usually from a bank, finance... Read More

Commercially Viable Commercial Mortgages

Commercial mortgages are similar to residential mortgages. Usually taken by... Read More

Home Mortgages: Does a No-closing-cost Loan Make Sense for You?

I have heard a number of radio ads and have... Read More

Mortgage Broker or Assassin? A Banker Who Offers You This Loan May be Trying to Kill You!

What if a banker or mortgage broker told you he's... Read More

Tips On New York Mortgage Refinance Loan

Many homeowners want to know if it worth taking a... Read More

The Top 5 Reasons to Buy a Home

1. Save on your income tax.Yes, something good can come... Read More

Lesser Known Facts About Home Equity Loans

Refinancing your debt via a home equity loan shifts your... Read More

Refinance Your Home Mortgage Online

The largest financial obligation most people ever take on couldn't... Read More

Florida Refinance - Refinancing in Florida

The decision to buy a home in Florida can be... Read More

Refinancing and Car Finance - Is it worth it?

Refinancing and Car Finance - Is it Worth It?No doubt... Read More

Tips For First Home Buyers On Getting Home Loans

Buying your first home will likely be the biggest and... Read More

What is a Repayment Mortgage?

A repayment mortgage is the type of mortgage that most... Read More

Home Equity Loans ? A Big Benefit Or A Big Mistake?

When the bills are piling up and there doesn't seem... Read More

Mortgage Cycling ? Brilliant or Risky

With mortgage rates near 20-year lows, competition in the mortgage... Read More

Should You Choose to Refinance?

Refinancing has become a valid option for many individuals with... Read More

Free Home Equity Loan Information

Home equity loan information can sometimes be confusing and misleading.... Read More

Know Your Mortgage Options

While trying to find the lowest rates, many homeowners fail... Read More

Reasons To Get A Home Equity Loan

Using a home equity loan really depends on what your... Read More

A Guide to Getting a Home Improvement Loan

If you've got a few things around the house that... Read More

Home or Investment Property Equity: Be Sure the Bank Gives You All that You Deserve

Home equity is your own personal money machine. If you... Read More

The Power of a Home Equity Loan to Pay Down Debt

Households across the country are finding themselves in a similar... Read More

Home Refinancing Scam ? Thieves Use Identity Theft to Steal Your Equity

Since the demise of the stock market in 2000, the... Read More

Should You Get an Interest-only Home Mortgage?

Before you consider taking out an interest-only mortgage, you should... Read More

Home Buyer Beware ? Know the Signs of Real Estate Market Trouble

Lots of articles have appeared recently about the booming real... Read More

Think You Cant Get a Mortgage?

You've finally found that dream home that you have always... Read More

Comparing The True Cost Of Obtaining A Home Loan

Home buyers are often confused about where to begin in... Read More

Guide to Remortgages

Here is a useful guide to remortgages. What is a... Read More

Real Estate Lender - Get Approved For a Mortgage Loan Online

Real estate lenders now offer mortgage loan quotes and application... Read More