Fixed rate or adjustable rate – which can be more comfortable for your home purchase?

Conventional mortgages are fixed rate mortgages and preferred by the home buyers because of the advantages in the offer. You are offered around 80% of the value of the property that you are about to purchase if you can afford a down payment of about 20% of the value of the property. The term of the loan ranges from 10 to around 30 years and even 35 years. As the interest rates are same throughout the loan term, the monthly repayments are fixed. The offers of fixed rate mortgages and adjustable rate mortgages can be studied clearly to understand which of the offers suit your needs.

If you can make higher payments towards the loan, you can restrict the loan period to 15 years or so and clear the loan in a short time. As the loan term is reduced, you can save on interest payments. The repayments should be easily affordable and so it is advised that you go for the property that is within your means. Going for a more expensive property than your means allow will lead to struggle when you are repaying the loan. An expensive house cannot replace your financial freedom. Planning your budget and understanding your affordability is stressed before you make the decision on the type of the loan and the loan amount.

Adjustable rate mortgage allows lower monthly payments in the initial stage as the interest rates are lower in the introductory period. The interest rates are not the same throughout the loan term as the market rates influence the interest rates. The loan payments are not the same throughout the loan term due to the market rate fluctuations. The offer of adjustable rate mortgage is intended to support the lending organizations. When the market rates are high, the depositors need to get higher interest on the deposit and this becomes impossible if the interest rates on the loans remain the same.

The adjustable rate mortgages are in favor of the lenders and the fixed rate mortgages are favorable to the borrowers. The fixed rate loans enable the borrowers to plan the budget and repay the loan without stress and the rate fluctuations do not affect the borrowers in the least. In adjustable rate mortgages, though the rates keep changing, there is restriction as to how many times the rates can be adjusted. The initial lower monthly payments attract the consumers who are yet to get settled in a good employment. If a borrower with a lower income and with promising scope in the near future desires to buy a home, it is suggested that adjustable rate mortgages can be the ideal choice.

Although the fixed rate mortgages specify higher monthly payments as opposed to adjustable rate mortgages, it is recommended that you compare the rates before deciding on an offer. Exact calculations of repayments have proved that fixed rate mortgages are cheaper than adjustable rate mortgages. There are other disadvantages as well in adjustable rate mortgages. In case there is depreciation in the value of the property, the borrowers of adjustable rate mortgages face huge loss. Finding the situation beyond control, most of the borrowers tend to dispose the property to settle the loan. This leads to further loss as the value might be lesser than the loan amount availed.

Whether it is a fixed rate mortgage of adjustable rate mortgage, it is suggested that you borrow only what you can afford. The repayments should be easily affordable. The comfort of the home cannot be enjoyed if your monthly bills towards the home make your life wretched. Understanding your limits and acting as per your affordability help to get a home that can offer you what you need with ease.