Owning a home is one of the biggest investments most people will make in their lifetime. With higher interest rates, more people are looking toward adjustable-rate mortgages versus fixed-rate mortgages. If you’re looking into buying a new home, is it better to have a fixed rate mortgage or an adjustable rate mortgage in Tampa, Florida?
Here are the facts about mortgages to help you make the right financial decision for your future.
What is a Fixed Rate Mortgage?
Fixed rate mortgages are granted at a set interest rate which remains the same throughout the life of the loan. For example, if you get approved for a Florida mortgage at a rate of 4.75 percent, it will stay that way until the home is paid off.
If you’re looking for stability and basically the same payment every month, then a fixed rate mortgage is a smart option. These mortgages are “locked in” at the rate agreed upon between you (the buyer) and the lender.
Most mortgages are fixed rate, but they aren’t all 30-year. There are also 20 and even 15-year fixed rate mortgages available, too.
What is an Adjustable Rate Mortgage?
Adjustable rate mortgages (ARM) are a bit more complex and buyers should proceed with caution. These mortgages start out with a pre-determined interest rate that the borrower pays for a set amount of time.
Once that time is up, the rate will adjust periodically based on a “benchmark index” until the loan is paid off. Most of the time, an adjustable rate mortgage is for a 30-year term. One downside to these mortgages is that you’ll usually only pay the interest at the beginning of the loan, so nothing goes to principal.
An example of this type of mortgage is a 5-year ARM, also called a 5/6 ARM. With this mortgage, the rate is fixed for five years, then it is adjusted every six months thereafter. Most ARMs have initial fixed-rate terms that last either three, five, seven, or 10 years.
Which of these Tampa Mortgages is Better?
It’s important to understand the pros and cons of both of these mortgage types. An adjustable rate mortgage usually starts out with a lower rate than a fixed rate mortgage.
But after the initial low rate period is over, the mortgage rate is likely to be much higher so it takes longer to pay off your debt. It can also reset even higher multiple times over the life of the loan. This leads to unpredictability and higher mortgage payments.
If you haven’t planned or budgeted for an ARM, you could be in for a surprise when the rate goes higher. So, even if the fixed rate mortgage has a slightly higher rate, it’s usually more stable and better in the long run.
Find the Right Mortgage for You
When it comes to the debate between a fixed rate mortgage and an adjustable rate mortgage in Tampa, the fixed rate tends to be a better option. Always talk with your lender to help you determine which Florida mortgage will suit you best.
If you’re looking for a mortgage in Tampa, Florida, contact FiCare Federal Credit Union today!