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When rates for mortgages were in the 16%-17% range, many potential buyers were shut out, and obviously so were the sellers who otherwise might have sold to them. Now that effective rates are hovering around the 11% level, homes have become more affordable.
Fixed- rate mortgages
The majority of people assume these are the most desirable. For some, this is true. If your temperament is such that you like to know exactly what you will pay through the entire life of the mortgage, then fixed-rate will be for you. Here are some disadvantges of going this route: The initial rate is generally 2%-3% higher than the initial rate on adjustable to protect the greater risk to the lender. Lenders's fees for originating the loan are higher than on adjustables. And there are often prepayment penalties that run for as mush as six months' interest. Fixed-rate loans now are generally always "due on-sale"(a future buyer of your home can't assume the mortgage).
Adjustable-rate mortgages
Many lenders are still not offering adjustable-rate mortgages. You may have to dig a lot to find one. At the same time, be aware that there are some good points to adjustables that may even tilt the scale in their favor, depending on your individual situation. Here's a look at the pros and cons: The rates on these do not generally move up as fast as market rates. You are more likely to get approval from your lender to let your buyer assume the mortgage. There are no prepayment penalties.
There are so many different types that you can get lost in the maze. If you want to keep things simple, look for a set rate at regular intervals 6 months, a year, 39 months. According to a specified index, the maximum increase is usually 2% per annum. If, on the other hand, you want more stability, longer adjustment periods may be for you. If rates do fall, the excess after interest payments reduces the principal owed.
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