Buying a home for the first time is a big deal, especially in Maimi-Dade County, which has a very competitive real estate market. However, it can be overwhelming knowing the option to choose, especially when deciding on financing.
Typically, your options will include these two choices: fixed-rate mortgage and adjustable-rate mortgage. Each of these options has its own set of advantages and disadvantages. Learning about these financial options will ensure you make the right decision.
In this article, we will look at the difference between fixed-rate and adjustable mortgages to help you determine which one suits your unique situation.
What is a Fixed-Rate Mortgage?
A fixed-rate mortgage (FRM) means your interest rates remain the same throughout the life of the loan. So, whether you choose a 15-year, 20-year, or 30-year mortgage, your rate of 7% monthly, for example, will not change. This is perfect for first-time Miami homebuyers who value consistency.
Benefits of FRM:
• Your mortgage payment will remain the same, which makes it easier to budget.
• It provides protection against rising interest rates.
• It provides stability if you plan to stay in your home for a long time.
Cons of FRM:
• Fixed-rate mortgages have higher initial interest rates compared to ARMs.
• If market rates drop, you will need to refinance your mortgage to get the lower rates.
What is an Adjustable-Rate Mortgage?
Adjustable-rate mortgages (ARMs) begin with a lower initial interest rate for a set of periods (typically 5, 7, or 10 years), and then the rates adjust annually based on market rates.
Benefits of ARM:
• It offers lower monthly payments in the first few years.
• If the market rates remain low, you will pay less over time.
• It will save you money if you plan to sell or refinance before the rate adjusts.
Cons of ARM:
• Your rates can increase over time, leading to higher payments.
• ARMs have various caps and adjustment rules that can be confusing to understand.
• If market rates rise significantly, your monthly payments could become unaffordable.
Choosing Between Fixed-Rate vs. Adjustable-Rate Mortgages
Here’s what to consider when choosing between both mortgage rate options:
Income Stability:
The most vital consideration when choosing between a fixed-rate mortgage and an adjustable-rate mortgage is the stability of your income. How consistently do you earn a fixed income? Are you expecting significant income growth in the coming years?
If you don’t expect a large income increase over the next couple of years, a fixed-rate mortgage would be ideal for you. It offers predictable payments and protection against interest rate increases.
Whereas, if you have a more flexible income, an adjustable-rate mortgage would be a great option to enjoy lower market rates.
Long-Term Plans:
How long do you plan to stay in the house? Are you looking to sell? If you plan to stay in your house for 10 years or more, you will want stability, which makes a fixed income a great choice.
This will ensure you don’t have to worry about market rate fluctuations.
However, if you plan to sell and move after a few years, then you should go for an ARM. It ensures you pay lower rates in the first few years before you sell the house.
Finding the Right Mortgage for Your Miami Homebuying Goals
There’s no one-size-fits-all solution when it comes to mortgages. Whether you are buying a home in Brickell, Coral Gables, or Kendall, your mortgage should align with your long-term plans and financial situation.
If you are unsure, talk to a local mortgage expert in Miami like Lending with Nelly to explore your best options. We can help you find a mortgage that fits your needs and budget.
Contact us today at 305-776-8381 or email at nelly@lendingwithnelly.com to start your Miami-Dade homebuying journey.