Choosing between a fixed interest rate mortgage and an adjustable interest rate mortgage has been made a good deal easier over the last few years thanks to the fact that interest rates are now lower than they have been in decades, giving people little reason to pass up a fixed interest rate mortgage for an adjustable rate mortgage. When interest rates were higher choosing between a fixed interest rate mortgage and an adjustable interest rate mortgage was a bit more difficult because there were more benefits of going with an adjustable rate mortgage, at least in the first few years. So, how exactly do you go about choosing between fixed interest rate mortgage and an adjustable interest rate mortgage?
First, you need to establish what your main priority is, are you looking for the lowest interest rate possible or are you trying to get a mortgage that will put you in the best possible position in the future? The main appeal of a fixed rate mortgage is that the mortgage interest rate will not fluctuate and change over time; it is fixed and will always stay the same. Obviously if interest rates shoot through the roof having a fixed interest rate mortgage will put you in a great spot but then again if interest rates drop lower than the rate you agreed upon you could be stuck with paying a higher rate than the market average. In contrast, the main benefit of an adjustable rate mortgage is that they are usually offered with lower than average interest rates in order to get people to sign on. This initial interest rate is usually locked in for a certain period, from six months to three years, after which the adjustable rate mortgage is unlocked and reverts back to market average.
The main reason many people don’t consider an adjustable interest rate mortgage as an option is because although it can be a good deal in the short term there is a real chance that you end up with a much higher interest rate in the future. If you are trying to choose between a fixed interest rate mortgage and an adjustable interest rate mortgage you need to figure out which type of mortgage will be best for your situation. If interest rates are low at the time when you go looking for a mortgage then it is a great idea to lock in a low interest rate for the length of the loan by getting a fixed rate mortgage. On the other hand, if interest rates are high it may be a better decision, at least in the short term, to go for an adjustable rate mortgage with a lower than market average initial interest rate. If you decide to go with an adjustable rate mortgage it is also a good idea to make sure that you either have the option to refinance or freeze the interest rate on the loan sometime in the future so that you don’t have to keep living on the whim of the market.