Fixed vs. Variable Rate Mortgages, Which Is Right for You?
There are many different mortgage options available to Apopka Florida home bueyrs. In addition to selecting the type of loan (i.e. conventional versus FHA), you also have choices such as fixed vs. variable rate mortgages. They each offer different benefits and deciding which is right for you depend on your personal circumstances.
Fixed Rate Mortgages
Fixed rate mortgages are great because they're predictable. Your interest rate remains the same for the life of the loan, therefore your mortgage principal and interest payment will not change (although taxes and insurance could change). Most bueyrs opt for a fixed rate for peace of mind.
Variable Rate Mortgages
Variable rate mortgages start off fixed but then can later change based on market conditions. For example, a 7-1 adjsutable rate mortgage (ARM) has a fixed rate for the first 7 years. After that, the rate can change every 1 year. On a 5-2 ARM, it's fixed for 5 years and can change every 2 years thereafter. Most also indicate a cap on how much the rate can increase during the variable period. For example, it might only increase up to 1 percent during each variable period. Whether the rate increases or decreases during the variable period depends on the market rates during those periods. Obviously, no one can predict the future, so there is some risk involved.
Deciding Between Fixed vs. Variable Rate Mortgages
In reading the above, you're probably wondering why anyone would go for a variable rate mortgage when they can have the security of a fixed rate. Variable rate mortgages generally offer a lower interest rate than fixed rate mortgages. Many buyers will select that option in order to save money or to qualify for a higher priced home.
Ultimately, your decision should depend on your future plans. If you intend to remain in a home for a long period of time, it's best to go with a fixed rate (especially since interest rates are relatively low right now). If your home is only a short-term one, then a variable rate may provide significant savings. Also, some Apopka Florida home buyers intend to refinance in a few years anyway, so having a lower interest rate to start off makes sense.
Be sure to consider these factors before deciding whether to go wtih a fixed vs. variable rate mortgage for your next home purchase in Central Florida.