Adjustable vs. Fixed: Which is Best for You?

Wikileaks has been in the news a lot lately, hasn’t it? So-called “leaks” used to be perhaps an occasional event but today the leaks seem to be much more frequent as well as, well, juicy.

The problem Wikileaks has is credibility. Yes, the reports are released to the media but it’s difficult to determine whether or not the leak is authentic or just a smoke screen for something else.

If you’re buying a home or refinancing a mortgage it may also be a bit confusing when determining whether or not a fixed rate is better or an adjustable rate mortgage. Unfortunately, you won’t see a Wikileaks report about which is better. But then again you don’t have to.

Fixed rate mortgages typically range from 10 to 30 years in five year increments. Your mortgage lender can offer a 10 year fixed, 15, 20, 25 and 30.

 

Certain portfolio loans can be as long as 40 years. Lenders don’t really have any preference over which term you select but in general the longer the term of the loan the lower the monthly payment. The shorter the term, the higher the monthly payment but with shorter terms the total amount of interest paid is much, much less.

Adjustable rate loans in today’s market are hybrids. A hybrid is in fact an adjustable rate loan but there is an initial fixed rate period before the loan turns into a loan that can adjust once per year. These initial fixed rate terms are typically offered in 3, 5, 7 and 10 year periods.

What is the allure of a hybrid? A hybrid will offer a slightly lower rate compared to a fixed rate loan. So, which should you choose?

Your loan officer will ask how long you intend to keep the property you’re thinking of financing. If you’re long term, it might be better to select a low fixed rate that can’t change at any time in the future.

If you’re pretty sure your short term, then a lower-rate hybrid mortgage is probably your best bet. No one can ever tell the future, but if your future sees you in your next home then a fixed rate locks in today’s rates for the life of the loan.