Fixed Rate Mortgages

With a fixed rate mortgage, your interest rate and monthly payments remain the same throughout the term of the loan:

• There is no risk of your monthly mortgage payments changing at any point during the course of the loan. This means as long as there are no drastic changes to your lifestyle, you should always be in a position to pay the mortgage amount comfortably.
• A fixed interest rate is typically higher than whatever the going adjustable interest rate is since you are offered more stability.
• Throughout the term of your mortgage, there is no change to the amount applied to principal versus interest, it always takes the same course as per the amortization schedule.
• If interest rates go down you don’t have the opportunity to take advantage of this move as you may with an adjustable rate mortgage.

Adjustable Rate Mortgages

With adjustable rate mortgages, your payment amount is determined by the initial mortgage rate fixed for a 3, 5, 7 or 10 year term, which presents some interesting pros and cons:

• With a adjustable rate mortgage, there is the potential that you can pay much less than you would with a fixed rate mortgage, but if interest rates go up, you could also pay much more as you do not have a guaranteed future rate once your “fixed rate” period is complete.
• You don’t have a guaranteed monthly payment amount, and you may have to tighten the purse strings on other spending when interest rates rise.
• Adjustable rate mortgages can allow you to pay down your mortgage with more money applied to principal depending upon what interest rates are doing at any given time.
• In order to be eligible for a adjustable rate mortgage, you may need be approved to pay a monthly payment amount higher than what you’d pay based on the interest rate at the time in a fixed rate loan. The regulations can vary by lender or state, but this ensures that your mortgage can always be paid.

Still have questions about whether an adjustable rate or fixed rate mortgage is best for your needs? We can help walk you through any questions you have to find the loan that best fits your needs.

As the Real Estate and financial markets continue to move up and down, mortgage rates can also be affected. Since mortgage rates are more closely tied to the bond markets, an up or down move in the stock market may not have the result in mortgage rates that one might expects. In fact, many times the resulting mortgage rate changes are counter-intuitive.

More importantly, rates change daily and they can change quickly. Some mortgage professionals have recently noted that their rate quotes have only had shelf lives of three to four hours before market changes have deemed them inaccurate.

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How does a consumer navigate fast changing markets in order to refinance their existing loan or purchase a home with the most favorable terms possible?

1. Plan – Define your needs ahead of time, do not wait until the last minute. This is especially true of home purchases.
2. Consult – Talk to your mortgage professional on a regular basis so they can interpret recent market events to you and communicate how those events can affect you.
3. Execute – When you have defined your needs and have determined that now is the best time to move forward, don’t shop yourself out of a good loan! What does this mean? It is easy to get caught up in shopping for the best rate, but it is not uncommon for home owners to miss locking their loan at a great rate because they are in search of better rates that do not exist or that they do not qualify for. It is important to shop to insure you are getting the best rate possible, but set limits to the number of companies you are going to consider doing business with and be careful of having your credit report needlessly and more times than is necessary!