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Fixed or Adjustable?Interest rates are one of the single biggest factors when choosing a mortgage. Generally, the lower the interest rate is, the better the mortgage is, but it really depends on the type of mortgage you choose and such factors as the loan to value ratio, and the fees and points charged by the lender. There are two basic types of mortgages: those with fixed rates and those with adjustable rates. A variation on both is a balloon/reset mortgage, which offers some features of each.
What type of mortgage rate should you chooseIf you plan to keep your home for five or more years, a fixed-rate mortgage will likely be the best option for you. If you expect to move within the next four years, or you're confident your income will increase steadily over time and you want to start with a lower monthly payment, an adjustable-rate mortgage may make sense. ARMs usually start with lower interest rates - and that means lower monthly payments at first. But keep in mind that ARM interest rates can go up over time - and so can your payments. |
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