How to Understand which Mortgage is Better
Mortgage – this is a dreaded word indeed, because people get extremely mortified to hear it, and yet this is something we can’t avoid. Before applying for a mortgage loan, you need to know about the terminology and technicalities associated with it. Only then can you successfully determine if a particular mortgage will be beneficial for you or not.
ARM and FRM
You are given two choices when you apply for a new mortgage loan – an adjustable rate mortgage (ARM) or a fixed rate mortgage (FRM). The final decision depends upon the current state of your finances. People are often advised to go for FRM since the interest rate doesn’t change for the entire duration of the loan, but sometimes ARM can be beneficial and help you to save some money.
The ARM loan comprises two different phases:
- The initial period has a fixed rate.
- After the above period is over, the rate adjusts over certain time intervals, depending upon particular indexes.
As mentioned before, the FRM loans ensure the interest rate is fixed for the whole term and doesn’t rely on any trends in the future. There is a certain degree of risk involved in ARM, but you need to be prepared for those. Circumstances might cause the interest rate to plummet, which is beneficial for you, but the reverse might occur too, which is why you need to ensure that you have sufficient cash to cover the peaked interest rates. The situation when interest rates shoot sky high is rare, but there is no harm in being prepared well in advance.
ARM or FRM – Which one is better?
The answer can’t be summed up in a single sentence – even experts can’t guarantee that one of them is better than the other. Consider this example – if you wish to live in your home for years to come, then a fixed interest rate is better, so you don’t have to bother about the rate fluctuating constantly. You can refinance if the rates drop suddenly. On the other hand, if your situation is temporary, and you plan to stay in your current home for a short while, it is advisable to go for ARM since the monthly payments will be lowered.
To know more ARM and FRM, go online and look for a financial expert to guide you. If you want to compare the total cost of 2 to 3 mortgages, TRY THE CALCULATOR.