Adjustable Rate vs Fixed Rate Mortgages in St. Louis
What’s nice about mortgages is that they allow you to shop around. Buying a St. Louis home is quite the process, so you need to make sure you have a mortgage that fits you. With that in mind, the big question becomes: is an adjustable rate or a fixed rate mortgage the best fit for you?
To help you in your decision-making process, here is how to decide between adjustable rate and fixed rate mortgages in St. Louis.
What’s the Difference?
When looking for a mortgage, you want to find one with the lowest possible interest rate. Interest is paid on top of your loan, so the less of it you pay, the better. Fixed rate mortgages are simple to understand. At the time of signing, you lock in at one specific interest rate, and you pay that throughout the life of your loan. If interest rates go up, your loan is not affected. If they go down, you don’t get the lower rates either. It’s a bit of a risk, but if the interest rates are already low for you, then there’s a good chance they won’t go down much lower.
Adjustable rate mortgages (ARM) can be a bargain if you’re willing to take a chance. These mortgages start with a locked rate, usually about five years. After that five years, you’ll pay a different interest rate each month depending on what the interest rate is. This means your mortgage payment will change each month. If rates are high now and you think they’ll go down, then this is a better option. Of course, you also run the risk of seeing interest rates stay high.
It also depends on how long you want to be in your home and paying off your mortgage. If you plan on moving within 10 years of getting your mortgage and the rates are low, then a fixed rate mortgage might be better.
Looking at Numbers
To really see which loan will be better, you should consider your numbers. Let’s say you’re buying a home worth $300,000. Of course, you’re putting down 20 percent, so the loan only needs to be $240,000. You have 760 credit score, and you want to live in the home for more than 10 years.
Rates change every day, so if you lock in a rate at 3.645 percent for a fixed rate loan, you might end up paying more than an ARM. ARM rates are usually lower to begin with, and if you’re confident that your interest rates will lower over the next say 30 years of your loan, then it’s a safer bet to go with the ARM rate (although nothing is certain for 3 months, let alone 30 years).
What’s important to remember is that both options have some positives and negatives, and the best one for you will depend on the St. Louis market at the time of your mortgage as well as your financial situation. If your rate is high now and projected to dip, then an ARM might better for you. If rates are good now and you won’t feel buyer’s remorse later, then a fixed rate mortgage will be best.
Talk with your lender about your situation. He or she will be able to walk you through each option and help you to choose the best one for you.