Interest rates may affect the type of mortgage you choose and decide when it is wise to make a change. Here are a few of the factors that may be affected by a fluctuation in interest rates:
Choosing a mortgage
As interest rates rise, a fixed rate mortgage is usually a good choice, because it freezes at the current rate and protects you from higher future rates. When prices fall, an adjustable-rate mortgage (ARM) is more attractive, as its interest rate changes periodically (usually every one, three or five years), so you can take advantage of new, lower prices . Therefore following mortgage rate trends will help you reduce your monthly payments.
Some people choose an ARM even when prices rise. This is because the interest rate on an ARM is significantly lower – as much as two percentage points lower than that of a 30 – year fixed rate mortgage. That means you pay less for housing loans has increased two full percentage points. After this, you will pay more than a fixed rate.
There are also mixed weapons, which have a fixed interest rate for a certain period of time – usually three to 10 years – and then becomes adjustable. (A 5 1 ARM, for example, has a fixed rate for five years, after which the interest rate is adjusted annually.) )
Hybrid arms may be the right choice if rates are likely to rise in the short term, but flat or falling. But these long-term trends hard to predict.
A change in the mortgage interest rate trends may make it worthwhile to switch to a different type of mortgage. When prices fall, you can save money by moving from a fixed rate to an adjustable-rate mortgages, so you can take advantage of lower prices. If interest rates seem set for a continued increase in the conversion of an ARM with a fixed rate mortgage can lock in a lower rate and protect you from higher payments. You should ensure that any closing costs are not outweighed by the benefits of refinancing.