Fixed Vs Adjustable Rate Mortgages -

Helping First Time Home Buyers Make

the Right Decision

The debate whether to opt for a fixed rate mortgage or to go for an adjustable rate mortgage has been forever. While different people have different reasons for favoring one of these loan types, the fact is that both loans have their own pros and cons, and it depends on the existing market situation and the needs of a borrower, what mortgage type suits them better. If you are a first time home buyer in Texas, confused because of the mixed opinions you have been getting, in this post we will help you choose a mortgage that suits your requirement the best.

Fixed Rate Mortgage

As the name suggests, a fixed rate mortgage is one wherein the mortgage rate stays the same throughout the tenure of the loan. It also means that the monthly installment a borrower pays to the lender stays constant, even if the prime lending rate goes up or down. While the good thing about a fixed rate mortgage is that you can “set it and forget it,” the only downside is that if the prime lending rates drop to substantially low levels, a fixed rate mortgage borrower will not be in a position to avail the benefits.

Adjustable Rate Mortgage In an adjustable rate mortgage, the interest rate stays the same for the first few years (the first two years) and then fluctuates with the prime lending rate. Some adjustable rate mortgages such as the 5/1 ARM let borrowers pay a fixed rate for the first five years and then fluctuates every year. Before applying for an adjustable rate mortgage it is advisable to look at the current interest rates and the historic rate

trends. If the rates are below or equal to the average interest rates in the last 5 to 10 years, then it’s advisable to opt for an adjustable rate mortgage.

One quick tip - If you are opting for an adjustable mortgage, speak with the lender

to confirm that the interest rate includes a capping, which means if the rates go up, the borrower will not have to pay beyond a fixed rate of interest.