30 Year Mortgage Rates: Fixed Or Variable?

30 year mortgage rates are higher than short term mortgage rates. However, many people find they can only make monthly payments by choosing the longer term because the size of the loan is so large. Monthly payments will remain low in a long mortgage, but the loan will be expensive. Keeping this expense in mind, it is in your best interest to seek the best rate option for you. You will be stuck with this rate for a long time, barring any refinancing, so choose carefully.

30-Year Fixed Mortgage Rate

The biggest advantage in any fixed-rate mortgage is predictability. For the life of your loan, you will never have a rate increase. Your monthly payments will be the same 10, 20 and 30 years from today as they are today. Following the housing and financial crisis of 2007 and 2008, financial authorities warned against adjustable rate mortgages all together because ARM loans are difficult to understand and the payments can shoot up too quickly. Many claim fixed rate mortgages are the only way to find stability in your ability to pay for a home.

Stability is a good thing, but there are also disadvantages to this mortgage. When you are first buying a home, particularly if it is your first mortgage, your credit score will not be as solid as later in life. Because of this, your rates may be high. Coming in at a high, fixed rate may push your monthly payments out of your income bracket. First time home buyers do not usually have the cushion of a large down payment either, so they can be stuck with a huge bill at the end of the month. If you think your earning ability will be altered dramatically over the next 30 years, you may be able to find more flexibility in an adjustable rate.

30-Year Adjustable Mortgage Rate

Adjustable rate mortgages allow your monthly mortgage payment to grow with your income. In the beginning, you will have a very low rate, allowing you get into a house you would not otherwise be able to afford and allowing you to become acclimated with the new payment. Additionally, this gives you a couple of years of saving money.  During the initial ARM period it is possible to make improvements to the home you purchased or simply allow your career to develop. The goal is to have sufficient income and savings for the inevitable increase in payments, once your rate adjusts.

The drawback with adjustable rate mortgages is that many are not prepared for the quick rate increase. Begin with determining the factors of the mortgaeg and input your loan figures into a mortgage calculator.  Then, input your potential adjusted rate with several loan terms; you may be shocked to find how much those payments change with even a small increase. Make sure to examine the overall picture to avoid surprises. Remember that life happens and you can lose your job, get a divorce, have a child or any number of factors that can impact your earning potential greatly.

Which is Best?

If you can afford to pay a little more per month in the beginning, go for a fixed rate mortgage. This will help you avoid jumbo mortgage rates and provide you with stability in the future. Adjustable rate mortgages are only and option when you simply cannot afford a fixed rate or have other plans for the property, such as selling in the very near future. Even then, you should set a maximum rate in your contract and save money for when the rates spike.
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