No, we're not ordering steak. 🥩🤠 It's just a mortgage. Although picking the wrong one for your family and finances could overcook your monetary meat and char your budget to the bone! 🙈♨️
When it comes to mortgage cuts, you have two choices: fixed rate or adjustable rate (ARM). ARMs sometimes get a bad reputation for being risky business. However, there may be cases where it makes sense based on your personal financial goals and how you're planning out the future. 🤔💭 Here, we chew the fat on mortgage matters.
Here’s Five Fast Facts on the two main types of mortgages:
- ✅ The Fix Is In - The main difference between a fixed rate and an adjustable rate mortgage is whether or not the interest rate fluctuates. With a fixed rate mortgage, the interest rate is set when you take out the loan and won't change.
- 💪🏼 An ARM and a Leg - With an adjustable rate mortgage, the interest rate fluctuates based on an index tied to overall market conditions, meaning it may go up or down. In many cases, ARMs will start at lower interest rates than fixed rate mortgages. This initial interest rate is usually offered during an introductory period set to expire after a determined amount of months or years. Once the introductory period ends, rates typically increase.
- 🐨💰 Koala-fications - Both fixed rate mortgages and ARMs offer the same term lengths. A term length is how long it will take you to pay off the loan, the most common being 30 years. Another similarity is in the approval process. In both types of mortgages, lenders will take a look at your income, credit score, and more.
- 🌋 It's Gonna Blow! - ARMs can play out in your favor if you lock one in during a period of high interest rates. As they decline, so will your mortgage payment. However, the opposite situation is also true, which could be even more dangerous than taking a long road trip after eating Taco Bell. Snagging an ARM in a low interest rate environment may benefit you in the short term, but if rates rise, you're also on the hook for higher payments.
- ⏰ Like Clockwork - Fixed rate mortgages are ideal when interest rates are low. Locking in a low rate helps protect you from wild swings in the market. They're also great if you want predictable mortgage payments and prefer an easy-to-manage budget. The downside to a fixed rate is that you're stuck with it should interest rates go below what you originally locked in. However, you can go through the refinancing process and negotiate better terms down the road.
🔥Bottom line: Whether you're planning to take out a fixed rate mortgage or an ARM, do your homework. A mortgage is one of the biggest financial commitments you'll make in your life, so choose wisely! Learn more about how a housing crash could affect your home buying plans here, and click here to get some juicy savings tips!
What kind of mortgage do you have?
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