Company News

Adjustable interest rate verse fixated interest rate

December 2nd, 2018 2:09 PM by Andrew Liu, President NMLS#249736

As the mortgage interest rate has gone higher, potential borrowers are increasingly choosing adjustable mortgage rather than locking into 30 years fixed rate.

Adjustable rate typically would be fixed for about 5 or 7 years, then it becomes adjustable once or twice a year.  Its rate would usually 1 – 2 percent lower than the fixed rate.  A mortgage of $400,000 would save the borrower about $200 a month or $2400 a year. For 5 years, the potential borrower can save up to about $17,000.

The adjustable is would be especially attractive, if the potential buyer plan to sell property in the next 5 to 7 years.

Nevertheless, according to value Penguin, a research firm, average home owners is American today would stay in the same homes for average 12 years ( 2018 data) verse 6 years( 2008 data).  There are reasons that people no longer would have to move to where the companies are located.  Many of the jobs can be performed remotely. The technology and artificial intelligence advance, there will be even  less chances that you would have to move to the job site.

Moreover, if the plan to move does not materialize, it would be costly to refinance or paying higher interest rate as the fixed period expires

As rates are still historically low, a fixed into 30 years interest might just be a good thing to do.   

Posted by Andrew Liu, President NMLS#249736 on December 2nd, 2018 2:09 PM

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