When buying a new home, you generally have two different options in terms of your mortgage and how you are able to pay the mortgage back. This comes in the form of the interest rate. While there are different formulas for determining the actual interest rate, you have the option of selecting a fixed mortgage rate or an adjustable rate. There are different elements that come into play for changing the adjustable rate, but all in all, it is very important to, whenever possible, accept the fixed rate, so you know what you are to pay every single month.
Fix and Adjustable Rates
When looking at the two initial rates, chances are the adjustable rate is going to have a lower interest payment. This is going to make it rather attractive when signing a new agreement for a long term mortgage. When you have to pay off a house over a 30 year time span, you are going to find that the adjustable rate is less, so if you calculate the total payment in your head, you probably are going to find that the overall cost is going to be thousands of dollars less. Of course those sounds good, as anyone who can save thousands, if not tens of thousands of dollars, should go ahead and do it. However, this is not exactly how an adjustable rate works.
Adjustable Rates Increase With Time
Over time, the adjustable rate is going to vary in its amount, which means you are not going to pay the same amount of money on a month to month basis. In fact, adjustable rates typically become larger when the different variations, ranging from inflation to the payment trends come in. The different variables that deterring the interest rate for an adjustable rate are ultimately going to increase the rate over time. This means, while the adjustable rate might appear more attractive up front, in the matter of a few years, it could possibly be several percentage points higher. This means, by the end of your 30 year mortgage, you are more likely going to be maying several thousand, if not tens of thousands of dollars more for your mortgage, all because you went with the adjustable mortgage rate.
Make the Right Decision
If you are looking to decrease your interest rate, you need to look for the fixed rate mortgage and the different elements that you can use to lower the monthly payment and the interest rate. Providing the 20 percent down payment is very important, as this is going to help lower the monthly interest rate. You also need to try and fix your credit score before you go about buying a house. By taking the year prior to buying a house to work on your credit, you can substantially increase your chances of receiving an improved interest rate. By following through with a few different changes in how you apply for the fixed rate mortgage, you are able to purchase the house and save money, all at the same time, without worrying about what your mortgage rate might be in the coming months.