Types of Mortgages - Fixed Rate vs. Adjustable Rate

The adjustable rate loan is a loan that can fluctuate with the market. Typically the loan is fixed for 3 to 10yrs and after that point it can start adjusting. This loan works great for someone looking to potentially lower down their monthly payment, because the interest rate is normally lower during the fixed term as compared to the previously mentioned fixed rate loan. It also makes great since for someone either refinancing a current loan or purchasing a new home and they only foresee themselves living in that property for 3 to 10ys. The main drawback to the adjustable rate mortgage is the uncertainty of what is the rate and payment is going to do when the loan begins adjusting. Obviously, in an increasing interest rate environment it would not be preferable to be in an adjustable rate loan, but if you have the right kind of adjustable loan you could save literally thousands of dollars in a decreasing interest rate environment.

This is a very important decision in the loan selection process. A good rule of thumb is if you expect to live in your home less than 3 to 5yrs, then consider and adjustable loan, but if longer than that it may be in your best interest to get a fixed rate loan which will protect you from rising interest rates. Of course, if you would like a free consultation, feel free to submit the contact form above.

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Types of Mortgages - Fixed Rate vs. Adjustable Rate

There are many different types of loan programs available to most credit worthy borrowers. These programs range from fixed or adjustable, conforming to nonconforming, 10 - 40yr terms, or cash flow payment options to full principle and interest options. Today I am going to discuss loan type, being either a fixed rate or an adjustable rate mortgage.

The fixed rate is exactly as it sounds, a fixed rate, determined at the closing of the loan that will stay at that interest rate and payment, until the loan is paid in full or until the borrower refinances the loan. Currently, most of our borrowers are determining that fixed rate mortgages are the best choice for them. The main reason being the security that this loan offers, because the borrower wants to know exactly what their rate and payment will be every month. The main drawback in a fixed rate loan is that if rates drop below your interest rate, the only way to lower your rate is by refinancing, which can definitely make sense, but you really need someone who knows what they are doing to guide you through that process. Right now fixed rates are near historical lows, so we are seeing more and more people taking advantage of these low rates by refinancing to a new lower fixed rate loan.

Texas Mortgage Rate Graph

Texas Mortgage Rates

Rates on mortgages secured by homes in Texas have reached a nice stable point which should encourage many people to refinance before the Fed increases rates and the rate increases trickle down to consumer mortgages in Texas.