When looking for a mortgage or mortgage refinance one of the factors that often get overlooked is what whether an adjustable mortgage rate or fixed mortgage rate is correct for your situation. Both offer different value in terms of risk, payment size, and your income stability. Choosing which type of mortgage rate that is best for you comes down to your current living situation.
The first major decision will come from whether or not you are the type of person that is constantly on the move. If you do not think that you will be in the same home for 10 years, than it may make sense for you to get an adjustable rate mortgage (often called ARM mortgages). Often times, an ARM mortgage will start off with a lower mortgage rate than a fixed rate mortgage. While this may make sense for shorter tem home ownership, you have to remember that you are always at risk for a rate increase. If you are not entirely risk-adverse and choose this option for your short-term needs, ARM loans can be a great option as often times your mortgage payments will be lower. This is great, because most likely you would not be planning on paying off the house, and could effectively save you money for when it is time to move again.
If you plan on making your home a more permanent residence, than a fixed rate mortgages makes much more sense. While ARMS may fluctuate to higher rates, your fixed rate will always stay the same, and you will always know what you will be paying each month. While the mortgage rate may stay fixed, it is important to remember that other factors, such as insurance and property taxes, are subject to change. A fixed rate mortgage usually means that you will be paying more towards your home on a monthly basis. If you have a stable income, and have put the effort into establishing a monthly budget for yourself, than you can actually view this as a benefit, as a higher mortgage payment means that you will pay your home off quicker than a smaller payment.
If you are at a point in your life when you are unsure if what the future holds for you, remember that you can refinance and change your rate type in the future. This is great if you currently move around a lot, but end up loving an area that you move to. Like most large purchases, knowing yourself and your financial situation is the most important factor in making the right choice for yourself.