Navigating Fixed or Adjustable Interest Rates in Today’s Market
Fixed-Rate Mortgages are a popular option among homeowners. They feature a fixed rate over a fixed term, affording secure and stable fixed monthly payments over the entire term of the loan. Fixed-Rate Mortgages are usually for either 15 or 30 year terms. Although uncommon, Balloon mortgages are a variation of Fixed-Rate Mortgages. Like Fixed-Rate Mortgages, they usually have a fixed rate and a fixed monthly payments; however, they span a shorter time-frame – usually 3 to 10 years. While the payments may be based on a 30 year term. There is sticker shock towards the end of the balloon term, as one must either pay off the remaining debt in lump-sum or apply for another mortgage.
Adjustable-Rate Mortgages (ARMs)
Adjustable-Rate Mortgages are (ARMs) are pegged to an independent financial index such as the LIBOR or COFI. There are several choices of index here, carrying a variety of components. To protect home-buyers from large rate increases, most lenders set limits on the amount rates may fluctuate at the time for a loan’s interest rate to be determined. This is known as the adjustable-rate cap. With a lifetime cap, lenders set a ceiling and floor for rate increases and decreases over the life of an ARM. The lifetime cap is expressed either as a particular percentage rate or as 5 to 7 percentage points over or under that initial rate. Be sure to ask about caps when you inquire about ARMs with your Ameritrust Capital Mortgage Consultant.
Which Type of Loan Is Best for You?
Each type of mortgage offers advantages and disadvantages. Choosing the one that makes the most sense for you will depend on your particular situation. If you are buying a home that you expect to live in for a long time, and if interest rates are low, then a long term Fixed-Rate Mortgage makes sense. If you plan on living in the home on an average of 7 years or less, than an Adjustable-Rate Mortgage can save you thousands in interest costs. Please consult with your Ameritrust Capital Mortgage Consultant on what is best for you depending on your time horizons.
Mortgage Interest Rates and A.P.R.
What’s the basic difference between your Mortgage Rate and your Annual Percentage Rate (A.P.R.)?
This is a common question many Home Buyers have when navigating the loan process. While it’s important to receive a low interest rate, it’s even more important to understand your A.P.R., the “true cost” of your loan.
An A.P.R. includes:
- Your interest rate
- Additional fees
- Terms of your mortgage
An A.P.R. prevents lenders from hiding costs. Borrowers should look for a small spread between an interest rate and A.P.R.
It’s important to note that an A.P.R. may not reflect certain costs or conditions, such as pre-payment penalties or the length of time your rate is locked. Federal law does not clearly specify what must go into an A.P.R. Hence, it varies from lender to lender.
While your A.P.R. is a great tool for making comparisons when buying a home or refinancing, it’s best to consult a mortgage professional before making your final decision.
Your Ameritrust Capital Mortgage Consultant can offer you expert insight on interest rates and A.P.R., as well as answer any additional questions you have.