Adjustable Rate Vs Fixed Rate Mortgage
If you are seeking mortgage but not sure whether to go for
fixed rate mortgage or adjustable rate mortgage, we can help you in making your decision. Actually choosing between ARM and FRM depends on personal conditions. There is no thumb rule that can determine what one should go for? Some of the points that are worth considering before choosing ARM or FRM are:
Let's analyze each of the above mentioned factors one by one.
Market Condition
Supply of more money in market causes the value of money to decrease. This market or economic situation is termed as inflation. Borrowing money in inflation by opting for ARM would be advantageous as in a short period when the value of money appreciates your interest rate would go down. FRM does not affect your interest rate, whatever the market situation is. Hence, it is advisable to consider the prevalent market condition before choosing your mortgage type.
Are you ready for paying variable EMIs ?
If you are choosing ARM then be prepared your monthly installments are never going to be fixed. It may change every month. Mortgage market is as dynamic as the stock market index. The rate you closed on is not going to be constant. It may increase and so will your monthly payments. If you are ready for increased as well as decreased monthly repayments than going for ARM would not be a bad idea. While if you want to be safer by sticking to fixed repayment amount every month than go for FRM. FRM loans are offered at slightly higher rate of interest than ARM loans but the amount is fixed for the entire loan life.
Duration of your Stay
For how long you are going to stay in the house against which you are seeking mortgage? If the length of stay is too short say 5-6 years it is wise to go for ARM loan, assuming there will be no significant changes in interest rate for this period. But if you are going to stay for longer period like 30 years or lifetime, other above mentioned factors must be considered before choosing your mortgage plan.
Consider the factors mentioned above; spend some time in analyzing your situation and go for the best. We hope now you can decide whether you need to go for ARM and FRM.
