The best mortgage may not be the traditional 30 year fixed rate. 94% of purchasers last year opted for a fixed-rate mortgage at some of the lowest rates in home buying history. Yet, some of them will pay more in interest than necessary based on the time they will own the home. In order to find the best mortgage, talk with a loan professional about your specific situation.
If a person only plans to be in the home a few years, the adjustable-rate can offer significant savings. This may be the best mortgage for your situation.
Not only is the interest rate on the adjustable-rate lower than the fixed in the initial period, amortization on a lower interest rate amortizes faster than a higher interest rate.
In the example shown below, a $200,000 mortgage for 30 years is compared using a 4.25% fixed-rate to a 3.25% 5/1 FHA adjustable rate. The first five years of the ARM generates a $113.47 a month savings which accumulates to $6,808.20. In addition, due to faster amortization on lower interest rate loans, the unpaid balance at the end of five years will be $3,001 lower on the ARM for a total savings of $9,801.
Assuming the adjustable-rate mortgage was to escalate the maximum allowed at each period, the break-even would occur in 8 years and 6 months. If a person were to sell the home prior to this point, the ARM would provide a lower cost of housing for the homeowner.
For some people, the uncertainty of how the interest rate may change is not acceptable. On the other hand, for the risk tolerant individual who may be more confident in financial matters or who may know when they’ll be moving next, the ARM can be a smart choice.
Speak to a qualified loan professional about the best mortgage for you.
To make projections using your individual numbers, see the Adjustable Rate Comparison.
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For more information about Denver Colorado Real Estate or homes for sale along the Front Range, call Marilyn Van Steenberg, Dream Home Consultant, Certified Residential Specialist and Eco-Broker.
Specializing in Buyer Representation & Relocation Real Estate Transactions.