If you're refinancing and want lower
payments than a fixed rate mortgage, consider an Adjustable Rate Mortgage.
An adjustable rate mortgage may get you started with a lower monthly
payment than a fixed rate mortgage, but your payments could get higher when the interest rate changes.
ARMs are often attractive to homebuyers because they usually begin with lower interest rates and
payments than fixed rate mortgages.
Not exact matches
This means that if your total monthly debt — including the
mortgage payment — uses up more
than 43 % of your monthly income, you could have trouble qualifying for a 30 - year
fixed -
rate mortgage.
A
fixed -
rate mortgage is generally a safer bet
than an adjustable -
rate mortgage because you know what your interest
rate will be for the length of the loan and your
payments will stay the same for the duration of the
mortgage.
So if I used a 5/1 ARM loan to secure the lower interest
rate shown in the table above, my monthly
payment would be about $ 171 less
than the 30 - year
fixed -
rate mortgage.
Who it's for: The 15 - year
fixed -
rate mortgage is ideal for California home buyers who want to pay less interest
than they would pay with a 30 - year loan, and can afford a larger monthly
payment.
Thus, changes in policy
rates will affect Canadian
mortgage payments either immediately — or at least sooner —
than the comparable
fixed rate mortgage in the US.
Starting Oct. 17, all buyers with high - ratio
mortgages — less
than a 20 per cent down
payment — must qualify based on the five - year benchmark posted
rate, even if they have negotiated a lower five - year
fixed - ate term.
Often, an ARM loan may have a lower starting principal and interest
payment than a
fixed -
rate mortgage.
As already discussed, ARMs tend to have lower initial interest
rates than fixed -
rate mortgages, so some borrows refinance to them for the extra savings on their
payments or when they feel interest
rates will decline in the future.
Due to the increased risk associated with fluctuating
payments, 5/1 ARMS usually have lower introductory interest
rates than traditional 30 - year
fixed -
rate mortgages.
30 year
mortgages have typically been the most popular home financing solutions in the United States as they keep monthly
mortgage payments lower
than 10, 15, and 20 year amortizing
fixed rate products.
Usually this type of loan is easier to qualify for, requires a smaller down
payment, and has lower interest
rates than fixed -
rate mortgages.
Your new
payment must be at least 5 % lower
than your old
payment, or you must be replacing an ARM with a
fixed loan (the new
rate can't be more
than 2 % higher) or hybrid loan (the new
payment can't be more
than 20 % higher), or reducing the term of your
mortgage, or dropping your interest
rate by at least 2 % (if replacing a
fixed mortgage with an ARM).
Most ARMs allow an initial period of
fixed rate payments at a lower average cost
than equivalent
fixed rate mortgages.
We saved more
than 20 % for our down
payment, and secured a 15 year
fixed -
rate mortgage with NO credit.
Starting Oct. 17, all buyers with high - ratio
mortgages — less
than a 20 per cent down
payment — must qualify based on the five - year benchmark posted
rate, even if they have negotiated a lower five - year
fixed - ate term.
Don't get gouged by
fixed -
rate mortgages that require hefty down
payments or adjustable
mortgages that will end up costing way more money
than the bank will have you believe.
«Interest
rates for 30 - year
fixed mortgages are now almost a half percentage point higher
than the record low set in mid-November,» says Frank Nothaft, Freddie Mac's chief economist, Freddie Mac, «which for a $ 200,000 conventional loan amounts to $ 50 more in monthly
payments.»
An adjustable
rate mortgage may get you started with a lower interest
rate than a
fixed rate mortgage, but your
payments could get higher when the interest
rate changes.
With lower interest
rates and a shorter payoff period
than a 30 - year
fixed -
rate mortgage, and lower monthly
payments than a 15 - year
fixed -
rate mortgage, the 20 - year
fixed rate hits the sweet spot for some borrowers.
The monthly
mortgage payment attached to a 30 - year
fixed -
rate mortgage is lower
than it is with a 15 - year
fixed -
rate mortgage because
payments are spread out over a longer number of years.
Unfortunately, a 15 year
fixed rate program carries a much higher monthly
mortgage payment than that of a 30 year
fixed rate program.
For example, a 15 - year
fixed -
rate mortgage requires higher monthly
payments than a 30 - year loan.
It provides lower initial
payments and a stable final monthly
rate, but the final
rate may be somewhat higher
than on a standard
fixed rate mortgage.
Due to the higher principal
payments, you will build equity in your home more quickly with a 15 year
fixed mortgage than a 30 year
fixed rate mortgage.
Under the new rules, a stress test that had only applied to borrowers who opted for variable
rate mortgages or
fixed rate mortgages with terms less
than five years will now be used for all home buyers with less
than a 20 per cent down
payment.
This type of loan gives you the benefit of paying lower interest
rate on balloon loans
than 30 - and 15 - year
fixed mortgages, resulting in lower monthly
payments, asking for very little capital outlay during the life of the loan.
An ARM may come with a lower monthly
payment amount
than a
fixed -
rate mortgage, which means may qualify for a larger
mortgage
So if I used a 5/1 ARM loan to secure the lower interest
rate shown in the table above, my monthly
payment would be about $ 171 less
than the 30 - year
fixed -
rate mortgage.
Additional detractors are that
fixed rates are higher
than other loans leading to higher
mortgage payments and the
rate won't drop if prevailing interest
rates improve.
If you prefer predictable
payments and / or are planning to stay in your home for longer
than a decade, a
fixed -
rate mortgage may be better, says Shikma Rubin, a
mortgage consultant at Tidewater Home Funding in Chesapeake, VA. «This is especially true in today's market, when interest
rates are low.
An ARM may come with a lower monthly
payment amount
than a
fixed rate mortgage, which means you may qualify for a larger
mortgage.
If you rolled all $ 150,000 of the debt into a new 30 - year
fixed -
rate mortgage at 4.1 %, the new
payment would be $ 725 a month, or more
than $ 130 less
than before that
mortgage debt was consolidated.
If you are planning on staying in your home for more
than 5 years and want the security of a monthly
mortgage payment that will never change, a
fixed rated mortgage is a smart choice.
The ARM usually offers interest
rates and monthly
payments that are initially lower
than fixed -
rate mortgages.
Those with large
mortgages can receive an ARM and refinance the loan every year; the lower
rates allow you to buy a more costly home yet you pay a lower
mortgage payment than a
fixed mortgage rate.
For homebuyers with less
than 20 % down
payment — currently to qualify for a 5 year
fixed rate mortgage, borrowers are qualified based on the fully discounted
rate which is currently more
than 2 % lower
than the Bank of Canada benchmark
rate.
With
mortgage rates near their historic lows,
fixed rate home
mortgages are likely going to be a much better deal if you plan on living in the house for an extended period of time, as when
rates reset on ARM loans the prior short - term savings will likely be more
than offset by the higher
rates for the duration of the loan, which can cause the interest - only loan
payment to exceed the amoritizing 30 year
fixed rate payments if
mortgage rates spike high enough.
In most cases, an ARM is the cheapest
mortgage available to first - time buyers; not only are monthly
payments usually lower (much lower)
than on a
fixed -
rate mortgage, but closing costs often are, too.
Fixed rate mortgages generally have higher interest
rates than ARMs, and if you end up selling or refinancing in the first few years, your interest
payments would have been greater.
In addition I assumed a 30 year
fixed rate of 5.25 % (this translated into $ 1500 in
mortgage payments only slightly more
than rental fees).
Nothaft put the
mortgage rate increases into perspective: «For example, with
fixed -
rate loan
rates up by 0.5 [percentage point] since last summer, and house prices in national indexes up at least 5 percnet, the monthly principal and interest
payment is more
than 10 percent higher
than it was last summer, adding to affordability challenges for first - time buyers.»
Fair Credit Borrowers can qualify for 2nd
Mortgage Refinancing to 100 %: With adjustable
rates on the rise,
fixed rates and
fixed monthly
payments are more cherished
than ever.
Under the old rules, lenders were required to «stress test» borrowers applying for an insured
mortgage with variable interest
rates or
fixed interest
rates with terms of less
than five years to ensure they could make their
payments.
For example, a 30 - year
fixed mortgage rate may be one percentage point higher
than say a 5/1 ARM, but the borrower who goes with the
fixed loan is banking on
payment stability in exchange for a higher upfront cost.
Have these households enjoyed monthly
payments up to $ 216.80 lower
than those that chose a
fixed -
rate mortgage originally?
The 15 year
fixed rate mortgage is a very popular choice for borrowers who want to build equity faster as the interest
rates are lower
than the 30 year
fixed rate mortgage and the principal
payments are higher due to the shorter term.
For
mortgages I recommend at least 20 % down, with
payments equal to or less
than 25 - 35 % of your take home pay on a 15 - year
fixed interest
rate.