Budgets and Money

Should I Consider a Fixed or Adjustable Rate When Refinancing?

What kind of mortgage can I afford? That is a question that should be answered by exploring your finances and balanced with your long-term plans. Fixed vs. adjustable rates have pros and cons that should be considered carefully.

Deciding On What Type of Mortgage Is Best

According to Freddie Mac, 30-year fixed-rate mortgages continue to remain relatively low.1 If your mortgage was taken out within the past five years, you may be wondering if refinancing is a good idea and trying to answer the question, “What kind of mortgage can I afford?”

Refinancing your mortgage, at a time when rates are low, could save you hundreds of dollars on your family budget each month. But when it comes to refinancing, what financial advice should you take when it comes to deciding between a fixed rate or adjustable rate mortgage?

The Types of Home Loans - Adjustable and Fixed

In the world of home loans, there are two basic types: fixed rate and adjustable rate. Depending on your individual situation, each loan carries its own unique advantages and disadvantages that need to be understood when it comes to refinancing your home and determining how to budget your money.

With a fixed rate mortgage, you'll pay the same interest rate for as long as you own your home. Therefore, regardless of how interest rates move, your house payments will remain unchanged. In contrast, an adjustable rate mortgage is subject to changing interest rates. This means that your house payment can go up or down.

If you're planning to stay in your home awhile and have concerns that interest rates may be on the rise, then you might want to consider a fixed-rate mortgage over an adjustable rate mortgage. That being said, an adjustable rate mortgage can be better suited for people who desire a lower interest rate in the beginning, but plan on selling the home before the payments begin to increase and before interest rates increase.

If you'd like to see how much you might be able to save by refinancing your mortgage, try giving one of the many online calculators such as Bankrate.com a spin. And if you're considering refinancing your mortgage and continue to have questions, consult with your financial advisor or a mortgage professional who can provide you with sound financial advice on what type of mortgage loan is best for you.

1.  http://www.freddiemac.com/pmms/pmms30.htm

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