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What do I choose?

The words explain themselves; fixed-rate loans have the interest set and do not change and an ARM loan has rates that may or may not go up or down through the lifetime of the loan.

Fixed-rate mortgages mean that you have the stability and knowledge knowing the set amount of your loan payment monthly and that will not change during the life of the loan. Your escrow may change if the insurance or the property tax goes up or down, but the actual loan remains the same amount.

The budget conscious homeowner will choose the fixed-rate mortgage for stability in managing financials. It is easier to understand and is the most common type of financing for home loans. The disadvantage of fixed-rate mortgage loan is when the interest rates fall below their loan and they want to refinance, this can cost them money in the refinancing of the loan but at a lower interest rate. Discuss this with one of the loan advisors at Lendevity for the best benefit for your financial situation.

Adjustable-rate mortgages are a bit more complicated for the first-time homeowner. Most ARMs will begin at a lower rate when the loan originates and may stay at that rate for several years. After a certain period, however, these rates will begin to fluctuate decreasing or increasing. You will need to work with your loan officer to discuss, the cap limit for your interest rate, the affordability with an ARM loan and the frequency that this interest rate may or may not go up or down.

ARMs are tied to an interest rate index. Talk with your Lendevity loan advisor on the different indexes, which are set by the market, the mortgage loan will follow. There are several ARMs available: 3/1 ARMs, 5/1 ARMs, 7/1 ARMs and 10/1 ARMs. The 5/1 ARM is the most popular with an introductory interest rate that last for 5 years and then the rates can change after that period.

A few benefits of doing an ARM loan might include:

  • You could purchase a home that is on the higher side of your budget due to the lower rates reducing your monthly mortgage payment.
  • This type of loan might be good for those that do not intend to live in the home they are purchasing for an extended period of time, saving them money in interest paid out.
  • Following the lower interest and having it adjust to the market will eliminate the need to refinance for lower rates.

The disadvantages of an ARM loan might include:

  • Payment shock when the loans rates and payments increase during the loan.
  • Confusion on the complexities of ARMs, where lenders could determine indexes, caps, and other loan specific financials.

Now that you understanding the difference contact a Lendevity loan advisor today.

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