Adjustable vs Fixed Rate Mortgage

There is not one answer to the question of whether you should choose an adjustable or fixed-rate mortgage. On the whole, fixed rate mortgages are preferred because of the stability they offer. However, there are some unique situations in which an adjustable rate may be worth the added risk.

Short Ownership Period

If you plan on living in your home for under five years, there is a chance you could sell the property before rates begin to adjust. For this reason, first-time home buyers often use this option. With a fixed-rate loan, you would pay the same monthly mortgage in the beginning of the loan as you would in the final year. With the adjustable rate, you can pay a reduced mortgage now and then sell the home before the rates adjust.

Anticipated Change in Finances

You always have the option to refinance your mortgage to a fixed rate in the future. You may feel you can get a better deal in a few years; maybe you will have paid off a student loan or increased your income. It can be a wise decision to take a cheap loan in the meantime and then refinance once you qualify for a more traditional mortgage.