Adjustable versus fixed rate mortgages: is one better than the other? It depends on who is asking. There are pros and cons for both types of mortgages. Professional investors would choose ARM because they know the advantages it provides when selling a house. Amateur investors choose a fixed mortgage rate because of the stability of the interest rate.
ARM Pros
Low interest
The low interest introductory rate attracts most professional investors. The low interest rate allows the investor to make affordable payments while working to flip the house for a profit. Low interest rate enables the investor to potentially make the most out of maximizing a profit.
Flexibility
ARM provides the most flexibility in the short term than a fixed mortgage rate. ARM is good for individuals who are only looking to own a home for two or three years and sell. Realtors usually recommend ARM for those who seek a starter home. When using ARM be sure to monitor the real estate market and sell prior to your planned date. It is better to rent an apartment during the closing process than to have the interest rate skyrocket on you.
Cons
Adjustable
Since your rate is not locked in you put yourself in danger of potentially owning an expensive investment. Once the interest rate skyrockets, your home no longer becomes affordable in most cases. Adjustable rate mortgage should be left to well educated investors or individuals whom are disciplined with sticking with their plan.
Fixed Pros
Stability
When signing a fixed mortgage rate loan you can count on stability. The interest in year one will be the same in year 15, 30, and 40 depending on your loan life. Stability is the most attractive for amateur investors or individuals looking to stay in the same location during their lifetime. Fixed mortgage rate is best used to rent out your house since the interest rate stays the same.
Cons
Stability
When signing a fixed loan it becomes expensive to refinance your home. When the market rate drops for interest rates, it can become tough and expensive to refinance your home. Stability offers more of a positive effect than negative but one should be aware of the negative effect of a fixed mortgage.
There are many ways you can compare the two types of mortgages. Deciding which type of mortgage is best for you should be consulted. Investments should not be taken lightly. Good luck!