Your mortgage banker is there to answer questions about your loan, and one of the most important questions to ask at the beginning of your approval process is about loan structure. This fundamental decision will have a significant impact on your repayment schedule, cost management, and budgeting for the coming years.
A fixed rate mortgage provides a set interest rate that does not fluctuate throughout the term of the mortgage. This type of loan is great for homeowners that want an easy, predictable budgeting plan but it also requires a certain level of financial stability - you have to know that your income will continue to support that level of payment for however many years the loan is active and still being paid off. The primary benefit of this loan is protection, insofar as the homeowner is immune to fluctuations that might impact market interest rates.
An adjustable rate mortgage has an accompanying interest rate that fluctuates over time. The initial interest rate is lower than market price and allows the homeowner to pay decreased interest in the short term.
This feature is an attractive incentive for borrowers that might have less cash at the beginning of the home financing process. But ARMs can be unpredictable - after the initial window of reduced interest rate, the terms of the loan are subject to market fluctuation. In a market with falling interest rate costs this might not be a bad thing, but ARMs are typically subject to multiple interest-rate adjustments over the years. And these costs can be very hard to figure into your budget.
Get more details about mortgage banker advice when it comes to structuring your home loan by contacting the pros at Midland Mortgage.