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AnthonyLeads's avatar

Should I choose a fixed-rate or an adjustable-rate mortgage?

Asked by AnthonyLeads (64points) August 15th, 2019

I’m planning on buying a House, should I choose a fixed-rate mortgage? or an Adjustable-rate mortgage?

can someone enlighten me the difference of these two?

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10 Answers

ARE_you_kidding_me's avatar

Always go fixed when rates are low as they are now. Adjustable rate mortgages are a rip off.

chyna's avatar

A fixed rate lasts the length of your loan. It can never change. And as @ARE_you_kidding_me just pointed out, rates are really low now. For an adjustable rate, the interest rates varies throughout the life of the loan and could really get much higher than what you started with. An adjustable rate is really only a good idea if you plan to pay off your loan within 5 years.
So depending on your need, I would still go with a fixed rate loan.

kritiper's avatar

Fixed rate is best. The adjustable one will eat you alive as the mortgage comes to the end.

Pinguidchance's avatar

In July the Fed (in the USA) cut rates for the first time in 11 years and further cuts are expected.

The recent inversion of the yield curve presages a recession.

If I were a borrower I’d prefer a floating (adjustable) rate for a while to see how far medium to long rates can fall.

ARE_you_kidding_me's avatar

Not me, sure the fed may cut rates but they are already so low that an ARM is still a poor choice.

JLeslie's avatar

Variable rate mortgages don’t have to have an ARM, unless something has changed that I don’t know about, which is very possible, because I haven’t looked at variable rate mortgages in 15 years.

My in-laws had a variable rate the life in my of their loan, and were hugely lucky that rates went down and down when they did it 30 years ago, but they also could have paid off the loan in full at the time they bought the house, so they didn’t have to live with the mortgage if the rate skyrocketed. 10 years later they couldn’t have paid it off, because their financial situation changed, but that’s a separate story, but if the rates had doubled they would have been in s tough spot, maybe forced to sell

I had a variable ARM attached to the MTA during the real estate boom in the early 2000’s when anyone could get a mortgage. The interest rate was in my opinion a scam. I did it only because I planned on selling the house in a year, and I could pay off the mortgage if I had to. Possibly, they don’t do these type of offerings anymore since the government cracked down in mortgages. I think the rate went from 2% to 5% a couple of years later, I don’t remember. It had some sort of thing where you pay only interest at first, nothing into the principal, or almost nothing (all mortgages you pay mostly interest at first, but this was more extreme). Attractive to investors who got tax breaks and didn’t plan on holding the property long, which is what I was doing at the time.

If you do a variable see if there is a cap on how high the rate can go. But, I still say don’t do it, get the fixed. The rate is so low now, get the fixed.

JLeslie's avatar

^^Great link. I didn’t understand the two terms weren’t interchangeable. Always good to know the industry lingo.

ARE_you_kidding_me's avatar

Again, one of the big problems people overlook is risk. With a fixed rate all quantities are known and constant. Little risk there if it’s properly underwritten.
Take some of these crazy mortgages from pre 2008 like interest only. This got a lot of people in trouble when the housing bubble popped. They were enticed by low rates or low payments and got in thinking they would refinance or sell. The bottom of the market falls away and your house is now worth 40 percent less. Suddenly you are way upside-down on your mortgage and refinancing is next to impossible for various reasons but mainly because you never really should have qualified to begin with. That balloon payment is fast approaching…. What do you do then?
There is little room for rates to fall, we are near historic lows. Now is the time to lock in a fixed rate. No offense to anyone but taking out an ARM is idiotic.

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