Mortgages are not one-size fits all. The two largest categories of mortgages that most homebuyers choose between are fixed rate mortgages and adjustable-rate mortgages. Each type has a unique set of benefits that suit a wide range of buyer situations. What is an adjustable-rate mortgage and why might a buyer opt for one over a fixed rate mortgage?
The main difference between adjustable-rate mortgages (ARM) and fixed rate mortgages is that ARM interest rates can fluidly change. When you sign a fixed rate mortgage, you agree to pay the same interest rate and monthly payment for the entire span of the loan. The interest rate for an ARM changes with the market. This means that your monthly payment can increase or decrease depending on the current strength of the market.
Most ARMs come with an initial fixed interest rate of 5 years. This is called a 5/1 ARM. For this type of mortgage, the buyer is given a fixed interest rate during the first 5 years after the purchase. After that period, interest rates and monthly payments start to vary as the market strengthens or weakens. Most ARM adjustments are made year to year, but they can occur as often as every month.
Clearview Realty helps home buyers in Colorado, Florida and California understand the different types of mortgages that are available and provides loans to help people achieve the dream of homeownership. Since the specifics of which mortgage to choose is dependent on a variety of factors, we encourage you to call us for more information and find out which is right for you. Our number is (720) 217-5731.