ARM vs. Fix Rate Mortgage Info

Debating “Great Taste or Less Filling.” Pondering whether the glass is Half Full or Half Empty. Both are more fun than choosing a Fixed Rate Mortgage or an Adjustable Rate Mortgage (ARM). However, the latter will have serious financial consequences for you. Both mortgage types have advantages and disadvantages and you must weigh the good and the bad of both to determine what you need. You must determine what is right for YOU.

To help you make an informed choice, here is some basic information for you to consider as you do your research. Remember, you need accurate information to make the most out of the Mortgage Calculators at American Capital Corporation – or anywhere for that matter…

ARM vs. FRM

Adjustable-rate mortgages (ARM)

Advantages

* Normally features lower rates and payments early on in the loan term.

* Allow borrowers to take advantage of falling rates without refinancing.

* Enables some borrowers who don’t plan on living in one place for very long to buy a house.

* Lenders use the lower total payment when qualifying borrowers, making it easier to qualify.

Disadvantages

* With a rise in Interest Rates, payments can rise significantly – just for interest – costing you hundreds of dollars or more each month.

* The first interest rate adjustment can be extreme – some annual caps don’t apply to the initial change.

* Untrained borrowers can easily get confused or trapped by shady brokers. ARMs are complicated to understand, and there is a lot of fine print. Lenders have flexibility when determining margins, caps, adjustment indexes and other things.

Fixed-rate mortgages

Advantages

* Rates and payments remain constant. There won’t be any surprises even if mortgage rates average over 10% as they did in the 1980s.

* Budgeting is easier. Housing outlays don’t change – unlike renting – where you know it will increase.

* Simple to understand.

Disadvantages

*Fixed-rate mortgage holders have to refinance to take advantage of falling interest rates. That’s a few thousand dollars in closing costs and a lot of work to prove up income, credit worthiness, etc.

* Can be too expensive for some borrowers, especially in high-rate environments, because there is no early-on payment and rate break.

Most fixed-rate mortgages cannot be customized for individual borrowers and they are similar from mortgage lender to mortgage lender. While lenders keep many ARMs on their books, most lenders sell their fixed-rate mortgages into the secondary market.

These considerations – and many more – should factor into your decision in choosing between a fixed-rate mortgage and an adjustable rate mortgage. To help illustrate differences, use the ARM vs. Fixed Rate Mortgage Calculator.

Come see the Orange County Mortgage Experts at American Capital Mortgage for video tutorials showing you how to use different Mortgage Calculators.

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