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    Fixed or Adjustable Rate – Which One is Best for First Time Home Buyers?

    FRM or ARM – Deciding which would be best for a first time home buyer

    The most common question that majority of the first time home buyers ask is if they should take out a fixed rate mortgage or FRM or should it be an adjustable rate mortgage or FRM. A mortgage is one of the costliest debts you can borrow, and is long term one too. So, you cannot simply decide as to which would be the best option for you, and your first time home buying experience. There are so many factors to be considered, that you may get caught in the whirlwind of confusion. However, one very important tool which can help you in such a situation is the home mortgage calculator.

    FRM versus ARM  

    A fixed rate mortgage is the one in which the interest rate remains fixed throughout the term of the loan. Therefore, it means that in case of the fixed rate mortgage, the amount which you are required to pay every month remains the same over the term of the mortgage, which can vary from 10 and 15 or 30 years and so on. So, you can find out the payments to be made every month on the home loan, if you use a home mortgage calculator. Lenders can also offer you numerous options with regards to the fixed rate mortgages, including the likes of the five and seven year fixed rate mortgages, with the option of the balloon payments in the end.

    On the other hand, the ARM or the adjustable rate mortgage is the option under which the interest rate changes from time to time. There are various types of mortgages which are available under this option and these are the interest only ARM, the option ARM, the hybrid ARM and so on. In this case too, you can use a home mortgage calculator, in order to determine the cost and the payments to be made as per the changes in the interest rate.

    Choosing the right one

    There are various factors which you would be required to consider in order to decide, as to which is the better option for you as the first time home buyer. You will have to consider:

    1. Your affordability – The most important thing which you are required to consider is your affordability, with regards to home buying. Which product you are going to take out will depend on the level of your affordability. For example, if you are low on your affordability and if you know that it is going to improve over time, you can take out an adjustable rate mortgage.
    2. The cost of the two types of loans – Before applying for a certain type or deciding on one, it would be important for you to consider the costs of taking out an ARM or FRM. This can be figured out easily through the usage of a home mortgage calculator.
    3. Your ability to handle the changes in the cost – If you are considering taking out an ARM, it would be important or you to consider the changes in the actual cost of the mortgage. This is because, the cost can vary depending on the change and thus the payments that you will be required to pay every month will vary too.
    4. Your requirements and the type of home you are buying – The type of home loan you are going to obtain also depends on what your requirements are. You will be required to find out and determine your requirements and then choose the right home type, and based on all of these, you may have to decide on the right type of mortgage product.

    Experts always opine that it is a good option to go for a fixed rate mortgage. Even if the interest rates increase in the future, you won’t be liable for paying a higher monthly payment. Presently, the interest rates are at an all time low. So, it will be a good option for the first time home buyer to go for a fixed rate mortgage.

    Author bio: Stephenie Miller is a prolific finance writer and has been associated with many financial websites as a guest columnist. Here’s a small contribution from her on FRM and ARM, which may prove to be of some help for the first time homeowners.

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