Adjustable Rate Mortgages
- Thread starter Blondie76
- Start date
tirdun
staring into the abyss
OK, I'm not an accountant or a lender.
Fixed
--------
Pros: You can figure out what your monthly payment will be for the next 30 years.
Cons: These are higher than Adjustable right now, so you're paying more interest, and since the interest is "front loaded", your equity goes up slower. Front Loading means that you pay most of the interest NOW and less later. The "fixed rate" is actually the average rate over the life of the loan. Since most people don't actually pay out their 30 year mortgagae, it means your actual interest rate was higher than advertised.
Variable
--------
Pros: Right now, they're lower than fixed. They're a little easier to get, I believe. If your house payment isn't > 25% of your monthly net income, give this some thought.
Cons: They change, meaning they can go up. If you are scraping by, don't go here, because you'll get burned by this. Even a small change in interest rates will raise your payment by hundreds of dollars. If you can't afford paying 100 bucks more a month at some point, then its not risking your house for the cut in rates.
I went fixed, so I don't have to think about it. We pay ahead to counter some of the interest. Either way, find an accountant or lender who will answer your questions.
Fixed
--------
Pros: You can figure out what your monthly payment will be for the next 30 years.
Cons: These are higher than Adjustable right now, so you're paying more interest, and since the interest is "front loaded", your equity goes up slower. Front Loading means that you pay most of the interest NOW and less later. The "fixed rate" is actually the average rate over the life of the loan. Since most people don't actually pay out their 30 year mortgagae, it means your actual interest rate was higher than advertised.
Variable
--------
Pros: Right now, they're lower than fixed. They're a little easier to get, I believe. If your house payment isn't > 25% of your monthly net income, give this some thought.
Cons: They change, meaning they can go up. If you are scraping by, don't go here, because you'll get burned by this. Even a small change in interest rates will raise your payment by hundreds of dollars. If you can't afford paying 100 bucks more a month at some point, then its not risking your house for the cut in rates.
I went fixed, so I don't have to think about it. We pay ahead to counter some of the interest. Either way, find an accountant or lender who will answer your questions.
amethyst_babes
New Member
We have an ARM. The benefit to us was 3 years at a low interest rate (4.25)at which point we plan to refinance. If, however, the interest rates in 3 years are outrageous, our ARM will adjust by 2% in year 4 and 2% in year 5 and 1% in year 6 at which point it will cap and no longer go any higher. So worst case scenario we are looking at an interest rate of 9.25 in 6 years. But we figure we will lower our balance enough to be able to refi into a 15 year mortgage and we expect that rate to be reasonable. If it is higher than 9% we will keep our ARM.
