Should I Get an Adjustable or Fixed Interest Rate?
This can be a most perplexing question for a young couple, a family who has owned homes before, or a single woman or man. The subject usually requires some serious thought.
Five Questions to Ask Myself . . .
- Do I think the rates are low or high? If they are low then I will probably want a fixed rate – even though the adjustable rates are very attractive. If the rates are relatively high then an adjustable may be my best choice since more than likely I would refinance out of a high fixed rate anyhow once the rates came back down.
- How long do I intend to live in my house? Do I anticipate growing out of it due to the growth of my family or will I likely move on to another home in the next few years? What does my history tell me and what about my job. Does it move me around, or will I be in one place for quite awhile. If my expectation is long term, then my decision would lean toward a fixed rate. If a move is likely, then it would be wise for me to use a fixed/adjustable (5/1 or 7/1).
- How tight is my budget and how well do I qualify? If things are tight the extra $50 to $100 per month could be significant to my family finances. If I qualify well then the savings of an adjustable rate over a fixed rate would be of little concern.
- Do I plan to remodel or expand the house after I close the purchase? Would I, therefore, probably want to refinance the home at its completion covering the cost of construction. This requires a bit of thinking ahead in not only financing but design, lot size and set back restrictions.
- Which loan will help me sleep best at night? This is what I call the “sleep factor” and it is very important, especially if I am married. Trust me, if one of the partners lays awake at night worried about “rising interest rates” then the other will be awakened as well.
The bottom line is that you will want to sit down with a skilled and experienced mortgage consultant to fully grasp the options open to you. A phone call is generally not adequate to give you a good feel for what you need to consider. Hopefully it will be a thoroughly enjoyable experience.
Peter M. Galde is the founder and principal at Cornerstone Capital Funding, 14500 Mono Way, Suite 110, Sonora Ca. 95370. Peter has 28 years experience in the finance industry. E mail Peter or call him on 209 532 7711 for further information.
