Which is Better? Fixed-Rate or Adjustable-Rate Mortgages

The answer depends on several factors including your financial situation. Lets take a look at the main differences between the two types of mortgages.

Fixed Rate Mortgage

Two major components that are needed to compare fixed rate mortgages are the interest rate and the points. Points are fees paid to the lender at the beginning of the mortgage period. They are based on a percentage of the loan. So, one point equals one percent of the loan amount. Therefore, a $100,000 mortgage with 1.5 points would cost $1,500.

One lender may offer a lower interest rate than another but the points may be higher resulting in a less attractive loan. The important consideration here is the length of time you plan to hold the mortgage. The longer you plan to keep the mortgage, a higher point with a lower interest rate makes more sense. And, the less time you plan to remain in a home you may be more likely to benefit from low or no points with a higher interest rate.

In addition, be sure to ask your lender the total of all fees involved. Lenders can tack on various fees that can add up in a hurry.

Some common fees are:

* application fee

* credit report

* property appraisal

* title insurance

* escrow fees

Request an itemized list of all fees in writing so you can compare mortgages fairly.

Adjustable Rate Mortgage

Selecting the best adjustable rate mortgage (ARM) is basically impossible because there are some unknowns. However, you can look at a few of the loan factors and depending on your situation make a decision you can live with.

The interest rate that an adjustable rate mortgage starts off with is called the start rate. This rate is the least important consideration when looking at ARM's because it will change. The start rate is often used as a teaser rate to make you think that the loan has good terms.

The more important factors to consider when deciding on an ARM is a formula of index and margin equals the interest rate. The index is what the lender uses to calculate your specific interest rate. Indexes can differ in how quickly they respond to interest rate fluctuations. Some common indexes used are Treasury bills (T-bills) and Certificates of Deposit (CD). The margin is a fixed figure which is added to the index to get the interest rate. Margins are typically about 2.5 percent.

Another important consideration is the frequency in which the mortgage rate is recalculated. Some ARMs adjust monthly, while others only adjust every 6 or 12 months.

Also, rate caps are used to limit the amount the rate can change within an adjustment period. An adjustable rate mortgage that adjusts every 12 months may be limited to a 1-2 percent change up or down. There should also be a lifetime rate cap to limit the rate change over the life of the loan which is usually around 5-6 percent higher than the start rate.

Before accepting an ARM you should figure out the payment at the highest rate allowed to see if you can handle the worst case payment.

Lastly, other lender fees should be considered with a request for a written total fees statement.

Fixed vs. ARM Payments

A fixed rate mortgage is just that, a fixed interest rate for the life of the loan. The payment will always stay the same without fluctuation, however, the risk is that if rates drop significantly you may be stuck with a higher rate.

ARM interest rates can fluctuate many times over the life of the loan, thereby, changing your monthly payment amount. ARMs offer potential interest savings because the start rate is typically lower than a fixed rate. Also, if rates drop or stay the same there will be a continued savings compared to a fixed loan. But, if rates rise an ARM will cost more than the fixed rate loan.

Choosing a Fixed-Rate vs. an Adjustable-Rate Mortgage

First, consider the risk you can take with the monthly payment amount changing. Do you have savings? Or are you budgeted to the max without any emergency savings? If you can't afford to pay your ARM at the highest payment amount you should steer clear of this type of loan.

Also, consider how long you plan to have the mortgage. Generally, ARMs are better for a mortgage of 5-7 years. If you plan to keep your mortgage for the long-term a fixed-rate mortgage may be the better, less stressful choice.

Lastly, if the thought of having an adjustable rate mortgage stresses you out...don't do it! The stress is never worth the potential savings. And, if rates drop significantly you may have the option to refinance to a lower rate anyway.

Jill Kane helps you find loans for all of your financial needs at Low Rate Loans

---

Google News Updated : Thu, 24 Jul 2008 00:51:42 GMT Review: 'Step Brothers' - 40-year-old goobers - San Francisco Chronicle Review: 'Step Brothers' - 40-year-old goobers San Francisco Chronicle - 2 hours ago Step Brothers: Comedy. Starring Will Ferrell and John C. Reilly. Directed by Adam McKay. (R. 95 minutes. At Bay Area theaters. For complete movie listings and show times, and to buy tickets for select theaters, go to sfgate. Video: The Stars of 'Step Brothers' CBS `Step Brothers' Ferrell, Reilly reunite as duo The Associated Press amNewYork - TheCelebrityCafe.com - Arizona Daily Star - indy.com all 209 news articles Publ.Date : Wed, 23 Jul 2008 22:39:58 GMT Hurricane Dolly Makes Landfall in Southern Texas (Update2) - Bloomberg ABC News Hurricane Dolly Makes Landfall in Southern Texas (Update2) Bloomberg - 1 hour ago By Demian McLean July 23 (Bloomberg) -- Hurricane Dolly was downgraded to a Category 1 storm as it made landfall today in southern Texas, where coastal residents weathered their first direct hit by a hurricane in almost a decade. Video: Dolly Pummels Texas Gulf Coast AssociatedPress Dolly forces refining cuts, hits gas output guardian.co.uk CNN - AFP - ABC News - The Associated Press all 6,204 news articles Publ.Date : Wed, 23 Jul 2008 23:36:26 GMT Report: Eagles call Packers about Favre - SportingNews.com CBC.ca Report: Eagles call Packers about Favre SportingNews.com - 1 hour ago While the Philadelphia Eagles are taking it easy with Donovan McNabb in training camp as he works his way back from a shoulder injury, that hasn't stopped them from going after some potential insurance. Winfield a Favre fan Minneapolis Star Tribune AP Source: Goodell monitoring Favre situation The Associated Press WAOW - Cappers Mall - Rotoworld.com - FOXSports.com all 2,439 news articles Publ.Date : Wed, 23 Jul 2008 23:26:08 GMT Red alert! The cellphone warning has been issued - Los Angeles Times ABC News Red alert! The cellphone warning has been issued Los Angeles Times - 44 minutes ago Now he's done it. Dr. Ronald B. Herberman, director of the University of Pittsburgh Cancer Institute, has said what no one else would -- no cancer experts anyway. Pittsburgh Cancer Center Warns of Cell Phone Risks ABC News Cancer researcher warns about cell phone use USA Today Dallas Morning News - WLOS - United Press International all 236 news articles Publ.Date : Thu, 24 Jul 2008 00:07:36 GMT The night Karadzic rocked the Madhouse - guardian.co.uk The Gazette (Montreal) The night Karadzic rocked the Madhouse guardian.co.uk - 4 hours ago A man plays a gusle in a bar called Madhouse in Belgrade, where war crimes suspect Radovan Karadzic is now known to have frequented. Video: Karadzic's arrest sparks clashes - 23 Jul 08 AlJazeeraEnglish Arrest of Radovan Karadzic: Why Now and Who's Next? Voice of America The Associated Press - BBC News - AFP - Reuters all 5,599 news articles Publ.Date : Wed, 23 Jul 2008 20:35:43 GMT Bloomberg, Gates pledge $375 mln against tobacco - Reuters ABC News Bloomberg, Gates pledge $375 mln against tobacco Reuters - 1 hour ago By Christine Kearney NEW YORK, July 23 (Reuters) - New York Mayor Michael Bloomberg and Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz) co-founder Bill Gates pledged $375 million on Wednesday to fight what they called a global tobacco ... Video: Gates, Bloomberg Pool Riches to Fight Smoking AssociatedPress Bloomberg and Gates fight smoking BBC News Bizjournals.com - AFP - FOXBusiness - USA Today all 385 news articles Publ.Date : Wed, 23 Jul 2008 23:11:25 GMT 'Dark Knight' Christian Bale's lady sidekick: Sibi Bale - Los Angeles Times E! Online 'Dark Knight' Christian Bale's lady sidekick: Sibi Bale Los Angeles Times - 57 minutes ago Like the Dark Knight/Bruce Wayne, Christian Bale is a real-life man of mystery. Averse to personal publicity, he is well-known for not wanting to discuss his private life. Christian Bale, Wife "Solid" at Knight's Spain Premiere E! Online Bale attends 'Dark Knight' premiere in Spain The Associated Press New York Daily News - FOXNews - MSNBC - Just Jared all 2,295 news articles Publ.Date : Wed, 23 Jul 2008 23:54:18 GMT Increase Website Traffic Make Money Online

PARLOT::Ebooks, Scripts, Websites, and more...

Adsense websites

Why Refinance Back into a 30-Year Loan?

One of the biggest reasons homeowners refinance their mortgage is... Read More

Benefits of a Remortgage

There are many benefits in choosing a remortgage, some of... Read More

13 Extra Costs to be Aware of Before Buying a Home

Whether you're looking to buy your first home, or trading... Read More

A Qualified Mortgage Consultant Can Help Boost Credit Scores

Consumers interested in purchasing or refinancing a home will pay... Read More

Decision Time: Home Equity Loan or Home Equity Line of Credit?

Home equity loans and home equity lines of credit continue... Read More

What is an Interest Only Mortgage?

An Interest Only Mortgage is one where the repayments are... Read More

Home Equity Loan ? When Does Refinancing Make Sense?

For the last two years, interest rates have been much... Read More

Types of Home Equity Loans

There are at least two types of home equity loans.The... Read More

When Not To Agree To A Home Equity Loan

Before you borrow money on your home's equity, think twice... Read More

Tips for First Time Home Buyers

When looking at tips for first time home buyers, you've... Read More

Applying Online For A Home Loan Can Give You an Instant Approval

"Instant Approval For Home Loans" is a common refrain for... Read More

Should You Refinance Your Mortgage if Interest Rates Drop?

Mortgage refinancing is when you take a mortgage of a... Read More

Home Equity Loan ? Still a Better Idea Than a 401(K) Loan

Anyone who borrows money is always looking for the cheapest... Read More

A Mortgage Loan For Homes

Everybody wants to own a house because it is something... Read More

Buying a Home With Poor Credit Is Easier Than Ever

Buying a home with poor credit is easier than ever... Read More

For Mortgage-Refinance Help, Get the Best Mortgage Professional, Not a Bank Loan Officer

When you need a mortgage -- either because you are... Read More

Kings Bay Saint Marys & Kingsland Georgia - Affordable Home Mortgages

Buying a home is usually the largest purchase any of... Read More

Home Equity Loans - 5 Useful Application Tips

Obtaining a home equity loan does not have to be... Read More

Bad Credit Home Financing - Buy a House Even With Poor Credit

Sub prime lenders come in two groups: reasonable and unreasonable.... Read More

Borrow on a Budget: Getting the Cheapest Home Improvement Loans

Getting the cheapest home improvement loans isn't always easy. It... Read More

Subprime Mortgage Loans Online - What To Expect

Applying for a subprime mortgage loan online can seem intimidating... Read More

Buying a Home? Dont Get Saddled with Two Mortgage Payments

I have a lot of friends and family who are... Read More

Home Mortgage Loan Information - Which Type of Home Loan is Best For You?

If you are considering buying a home, then you may... Read More

Home Loans -- Federal Regulators Warn Lenders to Be More Careful

Federal banking regulators have recently expressed some concern over the... Read More

What is a Buy To Let Mortgage?

A buy to let mortgage is a mortgage on a... Read More