Financial Facts: Fixed or adjustable – Which suits you best?
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The average homeowner now holds a mortgage less than five years. During that period homeowners either move or refinance to a different mortgage. So why do so many buyers still only look at 30 year fixed rate mortgages? If I knew that answer I would be in Vegas making a lot more money, but here is what I really think:
Many homebuyers anticipate living in that new home forever. They want to raise their family or they plan to retire in that very spot, in that very home. Many homebuyers see that home as a living breathing part of the family. Then there are the homebuyers that see the property as a house and a place to put their stuff. They do not see it as part of the family and what they see is an investment, a tax deduction or an income source from renting a room or two.
When I meet with a client I generally go over the rates on a 30 year fixed rate mortgage and the interest rates on both three and five year mortgages. It use to be that well over half of the mortgages I set up for clients were the 30 year variety. Now, well over half of the mortgages I do are five year adjustable rate mortgages (ARM).
Interest rates and out of pocket costs are the major factor when people are looking for the mortgage that best suits them. As an example, when a $250,000, 30 year fixed rate mortgage is obtained at a current rate of 5 percent, the monthly principal and interest payment is $1,337. The same mortgage of $250,000 on a five year ARM, at 4 percent, would have a principal and interest payment of $1,190. That is a savings of $147 a month and an annual savings of $1,764.
I am also seeing the combination of lower mortgage interest rates and some really good deals in real estate some buyers are buying more expensive homes. The lower rate of 4 percent would allow the borrower to purchase a home worth $30,000 more for the same payment as a 30 year fixed rate mortgage.
So what is the best mortgage for you? I cannot answer that question, but I do know that if you are considering the purchase of a home or you are considering the refinance of your current mortgage you need to run, not walk, to your friendly neighborhood mortgage professional. I know that I meet with potential clients all the time to explore the various programs and to work out the pros and cons for that client. Be prepared, be aware and be knowledgeable of what programs are available to you.
Bob Kieber can be reached at (970) 262-1199 or at firstname.lastname@example.org. He is a local mortgage lender and principal of Resort Lending.
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