Adjustable or Fixed? What Mortgage to Get Now

Most people that I speak with immediately assume that with interest rates at record low levels, of course you should go with a fixed rate mortgage.  The truth is that the answer is not so black and white but let’s see what the experts are saying now.  Renowned mortgage expert Barry Habib of Residential Finance Corporation was interviewed this morning on CNBC’s squawk box show discussing his views of the housing market and what types of mortgage options are attractive today.  He makes a few interesting points such as the value of having an assumable mortgage down the road should interest rates go up in the future and also discusses construction loans.  Click here to see the video of his interview.

My take on the ARM vs Fixed discussion has always boiled down to who is going to carry the interest rate risk.  If you go with a fixed rate, the risk falls on the bank.  However, you have to realize that this comes at a cost and that you are paying them extra to take on the risk for you.  Whether this makes sense for you or whether you should take on the risk of rising rates yourself and take a lower rate in return depends on a number of factors such as how long you plan on staying in your home and the ability to cover your expenses in the worst case interest rate scenario.  The bottom line is that there is no “right” answer for ARM vs fixed.  Both have pros and cons and you must see which fits your particular circumstances better.

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