Buying a new home isn’t a one size all process. What works best for your family and friends doesn’t necessarily work best for you. Though some shoppers find that a fixed rate mortgage is the best choice, others choose an adjustable rate mortgage. Before you meet with your loan officer, think about what an adjustable rate mortgage is and whether it’s the best option when it comes to buying a home in Burlington.
Shopping for a new home in Burlington means that you need to choose between a fixed rate or an adjustable rate mortgage. A fixed rate mortgage essentially means that your interest rate remains the same as long as you owe money on your home loan. An adjustable rate mortgage changes and fluctuates based on the current market conditions. This means that you pay a lower interest rate at the beginning of your loan, but your interest rate will increase or decrease in the future.
Will My Interest Rate Rise Too High?
Many Burlington home buyers worry that an adjustable rate mortgage will spiral too high, making their monthly mortgage payments too high. Capping that interest rate will keep your mortgage affordable. A cap is something that you add to your mortgage terms, which keeps the lender from raising the interest rates too high. For example, you can add a lifetime cap to your mortgage, which says that your interest rate will never rise by more than five percent. If your rate is three percent when you sign the loan documents, the lender can never increase that rate above eight percent.
Aren’t Those Interest Rates Risky?
Adjustable rate mortgages are only risky if you don’t have a cap in place. That cap ensures that your mortgage stays within an affordable range. Some lenders use a payment cap, which guarantees that the lender can only increase your payments by a certain percentage. If you have a payment cap of five percent and pay $1,000 every month, the lender cannot raise your payments above $1,050. Any type of cap placed on your mortgage will keep the rates affordable until you finish paying off your loan.
A home loan gives you the chance to buy the home of your dreams in Burlington even if you don’t have a sizable amount of money upfront. Choosing an adjustable rate mortgage ensures that you have affordable payments on your home now and in the future.
via http://michaelblanchard.benchmark.us/2013/11/12/adjustable-rate-mortgages-what-burlington-homeowners-should-know/
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