One of the advantages of an adjustable-rate mortgage is that it first starts the payments off low. This is good for people wanting a larger house but smaller house payments. It is also good for home buyers that need a house but cannot afford the fixed mortgage rate at that time. The bad part is that the adjustable mortgage-rate loan’s rate will change according to the rate reset every few month to a year. This makes it hard for the home owners to adjust making the payments if the mortgage rate goes up (Plaehn, & Media, 2013).
With getting an adjustable-rate mortgage the borrowers can save and invest more money for other things or save it for when the rates go back up and their mortgage payment goes up. Back in the year 2009 millions of people were losing their homes due to the high mortgage increases affecting their adjustable-rate mortgages (Healy, 2009). For home owners that get the adjustable-rate mortgages now they have to be aware that this can happen again.
They would need to redo their adjustable-rate loan before the high interest rates hit to try and help keep their rate down. An advantage of fixed-rate mortgage is that the home owners do not have to worry about their mortgage rate changing during the whole time they have their mortgage. The bad part is that if lower mortgage rates come up they would have to see if they could refinance their mortgage to get that lower interest rate. Many times when the home owner tries to refinance by the time the new loan geos through the rate has gone back up.
Another advantage of a fixed rate mortgage is that the home owners have a much more stable payment plan for their mortgage enabling them to budget their money better (Realtor, 2013). I think it is very hard to say which one I would suggest to a home owner today because of how the economy still is. The housing market is doing better this year but there are still too many people out of work and the economy is still in a recession. I also do not know how the future economy is going to be either. This makes it very hard to tell someone else which type of mortgage interest would be best for them.
I am not sure which one would be best for us when we move to Texas either. I think an adjustable rate would be good as long as the economy did not get worse and the rates would go up and keep going up. Then it would be just like back in 2009 when people were losing their homes because they could not afford the payments. The best one I think is the fixed mortgage rate because at least if the economy does get worse at least the home owner’s payment will not change with it.
- Plaehn, T. , & Media, D. 2013) The advantages & disadvantages of adjustable rates vs. fixed rate. SF Gate. Retrieved from: http://homeguides. sfgate. com/advantages-disadvantages-adjustable-rates-vs-fixed-rate-mortgages-8934. html
- Healy, J. (2009). More homeowners facing foreclosure. The New York Times. Retrieved from: http://www. nytimes. com/2009/05/29/business/economy/29home. html? _r=0
- Realtor (2013) ARM vs. fixed-rate mortgage. Bankrate. com. Retrieved from: http://www. realtor. com/home-finance/mortgages/compare-fixed-and-adjustable-mortgage. aspx