Real Estate Financing: An Important Decision

Researching Loan Budget Options

Then there is the question of the fixed rate or the adjustable rate mortgage. With a fixed rate, your rate will remain the same for the entire period that the loan is in place. With an adjustable rate, the rate is a certain amount for a short period of time, say one month to ten years, then varies according to the current interest rate. For instance, a 10/1 adjustable rate mortgage would have a fixed rate for ten years and then adjust each year for the following 20 years. Generally, real estate monthly payments and interest rates tend to be lower with an adjustable rate mortgage as opposed to fixed rate financing. However, there's always the danger with the adjustable rate mortgage that you will wind up paying a larger bill than you expected, since you're dependent upon the variations in the market.

Adjustable rate mortgages tend to be best for those who will be living in their homes for a short period of time. This is not an unusual scenario, given the fact that people tend to be more mobile than they used to be. It is entirely possible that you might want to stay in a house for only five years, then trade up for a larger model. In such a case, a 5/1 adjustable rate mortgage, where your rate would be fixed for five years, would be the best option for you.