This article will discuss whether a potential borrower should get a fixed rate mortgage or an adjustable rate mortgage. While both of these different models have their benefits and pitfalls, it really depends on the current economic climate as to which type of loan you should get.
One of the biggest decisions that you will encounter when it comes to getting a mortgage for your new home is whether to get a fixed interest rate or an adjustable interest rate. While both of these different models have their benefits and pitfalls, it really depends on the current economic climate as to which type of loan you should get.
Back in the late 1980's and early 1990's, interest rates were as high as 18% which brought the mortgage industry and new buyers to a near standstill. Many banks and financial institutions began to issue adjustable rate mortgages with attractive terms and low initial payments, which had the effect of stimulating new homebuyers to action.
Today in the mortgage industry however it is a different story. Interest rates today have fallen below 5%, and some economic advisors think that they need to fall even lower. Talks in Congress and the hallowed halls of Washington power industries, when discussing potential temporary industry reform to address the current housing crisis, have discussed moving the interest rate for new and current mortgages to around 2%.
So what does this mean for a person who has been saving money and is considering the purchase of a new home? It means that if you get a fixed rate mortgage now, you have the opportunity to lock in for yourself a low interest rate for the lifetime of your mortgage.
For the person who is daunted by the complexity of economic analysis, in layman's terms all that is going on right now is that it has become very affordable to borrow money since banks and financial institutions are working to encourage new spending and loans.
So why would it be a bad idea to go for an adjustable rate mortgage instead of a fixed rate mortgage in this current economic climate? Adjustable rate mortgages are a useful vehicle when interest rates are very high and are expected to be lower in the future.
You would not want to borrow money for a loan if you thought that the amount of money you would need to pay back would increase over time. However, the fixed rate mortgage is just the opposite and it is a lending vehicle that is useful when interest rates are low and expected to go higher in the future.
The interest rate simply means the growth rate at which money in borrowed, so if you can lock in a fixed interest rate when this number is abnormally low then you will secure for yourself and your family a great opportunity to own a new home without the typically high cost of borrowing money.
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