Once everyone starts earning money, everyone dreams of buying their own house. But with increasing real estate prices you may not be able to put the whole money for the house yourselves. You will have to get a mortgage to get the money you need to fulfil your dream. A few years ago, there was only one type of mortgage called Fixed Rate Mortgage. But today a lot of plans are available and you can choose the mortgage type that suits you best financially. Here the two most common mortgage types, the Fixed Rate Mortgage or FRM and Adjustable Rate Mortgage or ARM are discussed.
Fixed Rate Mortgage
Fixed rate mortgage is what the name suggests. The rate of interest is fixed for the whole period of your loan. The fixed rate mortgage can be got for different terms and it denotes the period of time the mortgage contract is in place. The loan has to be paid in full at the end of the mortgage term. The monthly payment has to be increased as the term decreases. But the good thing is that the mortgage rates are lower in shorter terms. With fixed rates you do not have to worry about the fluctuating rates in the market. The mortgage rate for you is set in stone on the day you get your money and never go up or down. There are different terms available like 10, 15, 20 and 30 year plans. The plans vary with different companies.
Adjustable Rate Mortgages
The Adjustable Rate Mortgage is also what the name exactly suggests. The rate of interest varies during the lifetime of your mortgage. The rate of interest is usually lower than the fixed rate mortgage as there is a chance of the mortgage rates increasing over a long time. In adjustable rate mortgage, it remains fixed for a particular amount of time. The interest increases after the particular time based on a set formula. Also after the particular period, the interest rate increases annually based on the formula. The mortgage rates increase annually until the loan amount is paid in full. Adjustable Rate Mortgage also comes in different plans and 3 year ARM, 5 year ARM and 7 year ARM are the most common.
You can find a lot of reasons to find to choose fixed rate mortgage over adjustable rate mortgage and you can find a lot of reason for the reverse too. If you are buying a place for just temporary use but would move on after some time, a reasonably priced and a lower adjustable rate mortgage make a good choice. But if you are planning on a permanent investment and do not like to take the risk of increasing mortgage rates, fixed rate mortgage is the best option for you. So do a lot of research about both mortgage types and make a choice based on what you can afford financially in the future and make your dream come true.
