We know there are a lot of choices available to homebuyers today looking to get a mortgage in Wilmington, DE. But understanding your options can be half the battle. With rates constantly changing and home prices historically high, the difference between an adjustable rate mortgage and a fixed rate mortgage can greatly impact your monthly mortgage payment.
Not sure which option is best for you? As local mortgage brokers, our team at Brandywine Valley Mortgages is here to provide you all the information you need so you can make the right choice for you and your budget. Contact us and connect with a mortgage broker who can walk you through the best option for you.
Here are some things to know about a fixed rate versus an adjustable rate mortgage.
Fixed Rate vs. Adjustable Rate: The Basics
While several different mortgage options are available, two of the most common types are fixed rate and adjustable rate mortgages. Let’s start with the basics of each mortgage product.
When you get a fixed rate mortgage, you will lock in one interest rate for the life of the loan. That mortgage rate depends on the current economic market — things like inflation, financial markets and more. Since these factors are constantly shifting and changing, the market interest rates and what you can qualify for can also change by the day, week and month.
When you work with a mortgage broker, they can outline your loan terms for a fixed rate mortgage. The most popular option is a 30-year fixed rate mortgage, which is popular thanks to its long-term predictability. When you get a 30-year fixed rate mortgage, your principal and interest payments will stay the same regardless of market conditions.
Some other fixed-rate mortgage options include a 15-year fixed rate mortgage, FHA loans and VA loans, which also fall into this category.
Once you have locked in a fixed rate mortgage, the only way to change it is to go through the refinance process. This can be beneficial if current market rates are lower than when you originally bought the home or you are looking to tap into your home’s equity that you have built up. Refinancing can give you cash to consolidate debt or make improvements to your home, and potentially get you a lower interest rate.
Adjustable-Rate Mortgages (ARMs)
On the other side is the adjustable-rate mortgage, which, as it sounds, adjusts over a period of time. The most common option here is a 5/1 ARM, where the first five years of the loan have a fixed rate, and after that, the interest rates will adjust every year based on the market conditions.
Unlike fixed-rate mortgages, ARMs offer a possible lower payment to start, which could then increase or decrease once the introductory period is over. While you might benefit from lower rates during the introductory period, you have less certainty about your payment amounts after that.
Another option is an interest-only mortgage, where you can pay only the interest for a specific period. After this initial period, your regular principal and interest payment will kick in.
If current market rates are high but are expected to go down, an ARM could be a great solution to save money initially and then potentially refinance or take advantage of lower market rates. But, there is less certainty, which could cause your monthly payment to fluctuate significantly.
Myths and Common Misconceptions
A common assumption is that getting an adjustable rate mortgage is riskier than a fixed-rate loan. And while that might be true, it is important to remember that things are always changing in the mortgage industry. There is a good reason why an ARM might work best for you, like if you plan on moving or refinancing in a few years. In these cases, an ARM can save you money thanks to its initially lower interest rate. You can talk to your mortgage broker about the best choice for you and your family as you go through the home-buying process.
When it comes to fixed-rate mortgages, some people think they are the more expensive option. While it is sometimes true that a fixed-rate mortgage will start as a more costly mortgage, over time, it can be the cheaper option thanks to rising interest rates. Plus, some people are willing to give up the lower initial introductory rate for the security a 30-year fixed mortgage can offer.
The Ideal Choice: It’s Personal
At the end of the day, there is no one-size-fits-all when it comes to home buying and mortgages. What is best for one person can be very different from someone else’s ideal mortgage. So, when you are considering what mortgage option is best for you, make sure you do your research and talk with a trusted mortgage broker like our team at Brandywine Valley Mortgage. We will help you evaluate your options and point you toward the right
Whether it is the length of time you plan to stay in the home, your financial security, or market conditions, you should consider all these factors when choosing between a fixed-rate or an adjustable-rate mortgage.
Get into a new house with Brandywine Valley Mortgage brokers!
Unlike a mortgage lender, our team at Brandywine Valley Mortgage can help you shop around and compare rates from several banks, giving you options when it comes to your mortgage.
We are proud to help clients in Wilmington and beyond get into their dream homes with competitive interest rates and affordable monthly payments. Curious to see what your monthly payments will be like? Visit the mortgage calculator on our website and customize your options to see what monthly payments could look like with a fixed rate mortgage or an adjustable rate mortgage.
Then, when you are ready to get started, give us a call. We are here to support you every step of the way.