Knowing the right questions to ask can help you make the right decision on a dome loan: Here's four that are important to ask:
- How much can I afford to pay each month towards my mortgage?
- Is my income stable? Is it likely to increase over the next few years?
- If interest rates should rise sharply, could I afford to make the higher payments of an adjustable rate mortgage(or an ARM) loan?
- How long do I plan on remaining in the home?
While you can't know what interest rates will be in the future, what direction is in store for the future, and will this trend continue?
The bottom line:
- If your goal is to have the lowest possible payments in the early years of your loan, AND you don't plan on remaining in your home for the long term, an adjustable rate mortgage (ARM), also called a variable rate mortgage, may be an excellent loan choice with its lower initial interest rates. Should interest rates decline further, an ARM will also allow you to benefit from lower rates without having to refinance.
- If you plan on staying in your home for a longer period of time (say five years), and feel that interest rates are currently favorable, but likely to climb steadily, you should strongly consider taking advantage of a fixed rate loan. This will allow you to "lock in" lower interest rates now and remove the pressure and uncertainty caused by worrying whether or not rising interest rates will cause your payments to increase substantially.
Know your options and carefully review offers from competing lenders before choosing the loan that's right for you!