When looking at local mortgage lenders to get a home loan in Sacramento, CA, you would need to answer several questions to help identify the best home loan option for you. One of those you need to determine is whether you want an adjustable or fixed-rate mortgage. This minor decision-making can affect the amount you need to pay for the next fifteen to thirty years. It would be best to understand what your options are before deciding.
Understanding an Adjustable-Rate Mortgage
The adjustable-rate mortgage means that your home loan would have no fixed interest rate. Unlike the fixed mortgage interest, choosing the ARM means that your monthly mortgage dues could rise and fall, depending on several factors, such as the benchmark or index and the ARM margin. For that reason, it is also referred to as the variable-rate mortgage or floating mortgage.
Although this option could bring surprises later on, it is still a preferred option by many risk-takers. The ARM almost always starts with the lowest rate possible. People after that decide to go with this option. Still, do not forget that when the market fluctuates, it can also affect the loan amount that you are paying.
A thorough understanding of how the ARM works can better help you navigate it and its ups and downs. Here is a quick showcase of how it usually goes:
- The Initial Fixed Period: Although the ARM, by definition, should not have fixed interest rates, it offers one at its beginning stage. It is called the opening rate, teaser rate, or start rate. This rate is typically lower than traditional, and fixed-rate loans serve as the ARM option’s benchmark rate. It could last for five to ten years, wherein you can enjoy paying the steady interest rate. Eventually, you will reach the next period.
- The Adjustment Period: This stage is when you can expect the changes to reflect on your monthly fees. After five or ten years of paying for the same mortgage loan, you will be subjected to the change brought onto the benchmarks. That means it could go up or down for the rest of your remaining loan years.
The ARM can be an excellent financial choice for homebuyers who plan to keep the home for a short period. Should you plan to relocate soon, at least you paid for less than what you should have paid for with the traditional fixed-rate mortgage. However, it is only best for those ready to afford higher payments as soon as the rates adjust.
No defined determining factors could tell whether the ARM or the FRM is the best for your budget and current situation. In some cases, the ARM could be the more budget-efficient solution, but it can also be relatively expensive once the rates go up. If you do not like surprises, settling with a fixed-rate mortgage may be the best option for you. However, if you secure a high-interest rate, you would pay the same amount for fifteen or more years. It is all about knowing how the market is and understanding your options well.
At Hawkins Home Loans, we know there is no one-size-fits-all home loan. So, we help our clients find the best financing support that fits their needs. If you are looking for home loans in Sacramento, CA, we can help answer your questions and assist you in determining the best mortgage option for you. Contact us today to start discussing your options!