Adjustable Rate vs. Fixed Rate Mortgage Calculator
While the adjustable rate loan is not always very popular compared to the fixed rate mortgage, the ARM program does have a place. When interest rates are very high, sometimes the best program to go with is an adjustable rate mortgage -- as rates come down, so too will your interest rate and mortgage payment. On the other hand, when rates are very high and you lock into a fixed rate mortgage, you are stuck with the interest rate and mortgage payment you have. The fixed vs. ARM really is a calculated risk -- and ultimately, a question of home affordability calculations.
So, how do you know when the best time is to consider an adjustable rate mortgage? When rates are low, perhaps less than 4% to 10%, you should give very serious consideration to taking out a fixed rate mortgage loan. If rates are at ten percent, there is a good chance we're in hyper inflation. With interest rates very high, 11% to 23% or more (yes, good credit mortgage rates can get very high), you should calculate the risks and consider an adjustable rate loan as these periods historically don't last for extended lengths of time.
Anytime you are considering an ARM program, the best person to speak with is actually an experienced and seasoned financial consultant. They will have intimate knowledge of what makes the rates go up and where they expect them to go in the future, based upon market conditions, inflation, and historical trends. Never go into an adjustable rate mortgage on the advice of a mortgage loan officer!
To get the big picture, use our adjustable rate vs. fixed rate mortgage calculator. This calculator will provide you with a side-by-side comparison of an ARM loan vs. a fixed loan. To get a better feel for max payments, go here to calculate your PITI payment with the highest interest rate your ARM could reset to -- this is your affordability test. If the option is available, you can also include an interest only calculation as part of your ARM comparison to see a fully-amortized repayment schedule for all three scenarios.
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