Fixed Rate Mortgage vs. Adjustable Rate Mortgage [10to5mortgage.blogspot.com]
Question by : To what extent can adjustable-rate mortgages prove useful considering the highly volatile markets in Canada,US? Which is better of the two, fixed-rate mortgages or adjustable-rate mortgages? Best answer for To what extent can adjustable-rate mortgages prove useful considering the highly volatile markets in Canada,US?:
Answer by Judy
Interest rates will go up - no doubt about that. Money Magazine stated that they could double in as little as 5 years. If you do an ARM - your interest portion of your payment could easily double. Conclusion: Run, and run away fast from Adjustable rates, options, variable rates, 5/1's, and 5/5's. Don't let the bank scam you - people need to get smart and stay away from these loans. I wish the government would just educate people on this once and for all - or just make the illegal. /
Answer by acermill
As has ALWAYS been the situation, adjustable rate mortgages make sense ONLY when a buyer knows in advance that he will be selling the property before the rate is to adjust. And making such a decision requires a rather accurate crystal ball. Other than such a scenario, adjustable rate mortgages are only for those who wish to gamble future financial situations.
Answer by Shamma
Adjustable-rate mortgages can be a good deal and fixed-rate mortgages are not good in all circumstances. Mortgage design does not always result in higher defaults in nations which had facing higher volatility of house prices. Role of mortgage product in mortgage default is limited and the dominant role of adjustable-rate mortgages helps in keeping the default rates lower.
What is an Adjustable Rate Mortgage or ARM? What is the difference between a fully amortized loan and an interest only ARM? Watch this Expert Real Estate Tips video about adjustable rate mortgage loans (ARMs) and how they adjust after a fixed period of time.
10to5mortgage.blogspot.com What is an Adjustable Rate Mortgage (ARM)?
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 t o 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. Find More Fixed Rate Mortgage vs. Adjustable Rate Mortgage Issues
