A fixed rate mortgage offers a steady payment over the life of the loan. If mortgage rates drop in the future and you want to take advantage of those rates, you will need to refinance your house. If rates go up in the future, you’re protected from those rate hikes.
For many first-time home buyers, a fixed rate mortgage is a great option.
An adjustable rate mortgage can go up due to the structure of the loan, or when the index of interest rates rises. If your loan is structured with a low introductory rate, study your loan agreement to determine:
- when the rate will change
- if there’s a cap on the interest rate you’ll ultimately pay
- how low your interest rate will be allowed to drop
- how often the rate will be adjusted
- if a refinance option is available with the same mortgage company
Tight Housing Markets
If the housing market is tight and prices are high, an adjustable rate mortgage with an introductory low rate may be a good option for a first time buyer. However, it’s a very good idea to get the home refinanced before the end of the introductory offer to protect your finances from market volatility.
If you’re working to increase your credit score but need to buy your house now, you may be able to access an adjustable rate mortgage to keep your payments low while you work on your credit score and before you refinance to a fixed rate mortgage.
This takes determination and focus. It can be very tempting to spend a bit wildly on your new house. If you use an adjustable rate mortgage with a low introductory rate to reduce your expenses and improve your credit, then keep going on that credit repair goal. Don’t open new accounts, take out other loans or get new credit cards.
Are You Thinking of Buying a Home in Dubois County?
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