One very important thing to know when you are starting out with getting your first mortgage as a first time home buyer is what is a regular mortgage and what is an adjustable rate mortgage. Once you know what each one is, you then can decide which one is better for you and your family’s needs.
No one can really answer for you which one is better when it comes to a regular mortgage (also known as a conventional mortgage) and an ARM. The best that any mortgage loan officer should do is provide you with all the information you require to help you make your own decision about which mortgage to get.
Briefly, adjustable rate mortgages (or ARM) typically have a cheaper interest rate in the beginning of the loan that remains fixed for some predetermined period of time based on the type of ARM you get. For example, you can get a 1 yr ARM or a 5 yr ARM or a 1 mo ARM. In each of these cases the interest rate remains fixed for 1 year, 5 years or 1 mo. After the fixed period the loan then starts its adjustment period.
Fixed rate or regular mortgages are something you can count on when it comes to your monthly payment and interest rate as they never change for the time that you have the mortgage with one exception. In the case that you escrow your real estate taxes and insurance – if either of these payments change (which they often do from year to year) you can have slight changes in your monthly mortgage payment. However, in just about all cases, your payments won’t change that much over the course of time and they will never change as a result of interest rate changes like what can happen with an adjustable rate mortgage.
In general, if you are planning on staying in your home for at least 5 years or longer, or if you are worried about the value of your home going up or down as what has happened to real estate values since 2006, then a fixed rate mortgage is probably a better choice for you. If you want certainty, then a fixed rate conventional mortgage is right up your alley.
However, if you are a risk taker and know that you aren’t going to stay in the home very long then an ARM might better for you because you can get a lower interest rate for the up front fixed period. You will need to be able to withstand changes in your interest rate if you run into a situation where you don’t move or can’t sell your home, or you can’t refinance because your home’s value dropped.
There is a lot to consider when deciding whether a regular mortgage or an ARM is better for you. Are you a risk taker or do you like stability?