Introduction to Mortgages - Fixed vs. Adjustable Rates

Looking to Secure a Home Mortgage? This Blog May Help You Better Understand the Type of Loan that is Best for You.

Home mortgages yield a multitude of options to select from and choosing the best one is entirely a matter of personal preference and financial standing. Coldwell Banker Premier Realty (CBPR) discussed the subject of mortgage as a matter of personal fit with Wells Fargo’s Home Mortgage specialists. The two main forms of home mortgage are fixed-rate and adjustable-rate.

The two differ in that fixed-rate has precisely what it sounds like- a fixed interest rate and payment for the life of the loan. This is beneficial in that it allows for individuals to budget confidently with a concrete expectation of what their payment will be, regardless of shifting interest rates and the economy’s ambiguity. Wells Fargo told us this is typically a better option for homeowners who see themselves as remaining in said home for a longer period of time. Depending on financial mobility month to month, it is always a better choice to select a shorter life on your loan, as this lowers the amount of interest you will end up paying in the end. However it’s imperative to weigh in on whether or not your shorter mortgage with higher payments will be restrictive to your lifestyle, or worse be a struggle to successfully pay.

The second major type of mortgage is adjustable rate, or commonly referred to as ARM mortgages. Adjustable rate mortgages have adjustable interest rates that will remain consistent for 5, 7, or 10 years, and then begin to adjust due to national trends annually. While this may sound like rolling the dice, Wells Fargo sets a cap on how high interest rates can climb to on your loan, keeping borrowers safe from astronomically high rates. A beneficial aspect of ARM is that the initial interest rate is almost always lower than a fixed-rate mortgage. While fixed-rate and ARM constitute the two large branches, there are a variety of subsets to choose from. Some examples of adjustable rate mortgages that are mentioned in Wells Fargo’s “Purchase and Renovate” program allow for lower monthly payments and the loan itself encompasses costs of renovating the property.

Home ownership is not necessarily restricted to those with exemplary credit, although credit score often determines optimal interest rates and mortgage plans. Wells Fargo has a “Home Opportunities” mortgage plan meant for those with sub-prime credit scores and lower income. Wells Fargo states, “Our Home Opportunities program may help first-time homebuyers and low or moderate income homebuyers who don't have a large down payment.” While it may seem daunting to secure satisfactory lending or lending at all, mortgages exist for every homebuyer and getting pre-approved is a great first step to take before starting the process.