Mortgage Types-Has the time come for a five-year mortgage fix? - A fixed interest rate loan has very low risk for the borrower. Every month you pay a set amount, over the next 15-30 years, and the interest rate never changes. Most people take out 30 year fixed mortgages.
Though you will pay more interest on a 30 year mortgage compared to a 15 year mortgage, interest rates are so low right now, that a 30 year mortgage seems to make more sense, considering that the monthly payment will be 28% less than a 15 year mortgage.
An adjustable rate mortgage is more risky to the borrower, because interest rates can potentially fluctuate up and down several times a year.
There is usually a cap on how much the interest rate can go up to, and they will give you notice when the mortgage interest rate is set to change. An adjustable rate mortgage fluctuates based upon a index, like the 10 year treasury note.
Then there is markup of a few points. Since an ARM is less appealing to most borrowers, there is a teaser rate that is offered, that is significantly less than a 30 year mortgage interest rate, that lasts for a few years.
An ARM can often be cheaper then a fixed mortgage, however, your monthly payments will fluctuate, and if you are on a fixed salary, some months can be tighter then others.
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