When comparing mortgages, one of the most important decisions you will need to make is whether you want to go with a fixed or adjustable rate mortgage. There can be benefits to each type based upon what you are looking for in a mortgage. One will provide lower monthly payments and more flexibility, while the other provides more stability month to month and a guaranteed payment.

Adjustable rate mortgages make sense in a lot of cases. Most commonly, I offer these mortgage types to homebuyers whose income is largely dependant upon irregular bonus or commission structures or to homebuyers who plan to be in the house for less than 10 years. In the first instance, it makes sense to keep the required monthly payments as small as possible, so that if it is a bad month or an off-cycle month for quarterly or semi-annual bonuses or commissions, there is some breathing room. These borrowers can then make large payments directly to principal when they receive their bonuses or commissions.

In the second instance, we can lock in a rate short term for up to ten years at a rate lower than prevailing rates which will then adjust after that specified period of time. If the borrower will be selling or paying off the mortgage in less time than it is locked (say 10 years), then the borrower managed to secure a “locked” rate much lower than current fixed rates.

Then on occasion, I will have a homebuyer who requests an adjustable rate mortgage from me, in an attempt to time the interest rate market. This is not something I recommend, especially in this low rate environment, but if you think rates will remain stable or go down over the next 5 to 10 years, an adjustable rate mortgage could offer some significant interest savings.

Fixed rate mortgages generally make sense for everyone else. They offer a set repayment period, a set monthly payment, an amortized principal and interest schedule, and interest rate security. If interest rates go up 10% in the next year, you will not have to worry about it. If you make your payments as scheduled, you will know when the mortgage will be paid off. It is plain vanilla. But in a mortgage, that can be a welcome thing.

If you have any questions about how an adjustable rate or fixed rate mortgage might impact your situation, please contact me. If you have anything to add about the benefits of fixed rate and adjustable rate mortgages, please leave a comment.