Fixed Rate vs. Adjustable Rate Mortgages

Which one is right for you?

With the American economy making a slow but steady recovery, it may be a good time to look at getting back into the housing market, be it finding a new home for your family or solid ground to retire on. For many, whether it be a first home or a new home, the decision between choosing a fixed-rate and adjustable-rate mortgage is an uncertain one at best. Here are a few examples of prospective homeowners to get you started thinking about what kind of mortgage would be right for you.

The Traveler:

Never to be bound in one place, you find a new town to settle in once every few years. If variety is the spice of life then nobody can ever fault yours for being bland. If you don’t see yourself staying where you are for more than 5-10 years, and adjustable rate may be the best idea for you, as you’ll be paying at a lower interest rate at the beginning of the mortgage and can then sell it off to move elsewhere without getting too high up. A fixed rate mortgage may not be the best for you, because you may end up paying more at the start of the mortgage than you would with an adjustable, but won’t take advantage of the fixed interest for the life of the mortgage plan.

The Tree:

You want a place your children and grandchildren can grow up in and look forward to having around, always. While the lower initial interest rate of the adjustable may seem like a good idea at first, you run the risk of that interest rate going through the roof fifteen or twenty years down the road, when a fixed rate would provide a stable, predictable mortgage.

Ultimately, regardless of which path you take, it’s always a good idea to sit down and discuss the decision with a financial advisor. Whether you want to try and take advantage of an adjustable-rate because you can see yourself moving around a lot, or want the stability of a fixed-rate since you’re comfortable with where you’re at in life, the first and most important step in choosing the right mortgage plan is figuring out how the numbers will pan out in the long run. Know yourself, and know how your plan works for you; after you have solid figures on the table, the decision becomes a lot easier than you’d think.

Sincerely,

Wayne von Borstel, CLU, ChFC, CFP®, MSFS

Personal Financial Advocate

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