A Lower Payment is Your Choice
May 13, 2014
94% of purchasers last year opted for a fixed-rate mortgage at some of the lowest rates in home buying history. Yet, some of them will pay more in interest than necessary based on the time they?ll own the home.
If a person only plans to be in the home a few years, the adjustable-rate can offer significant savings.
Not only is the interest rate on the adjustable-rate lower than the fixed in the initial period, amortization on a lower interest rate amortizes faster than a higher interest rate.
In the example shown below, a $200,000 mortgage for 30 years is compared using a 4.25% fixed-rate to a 3.25% 5/1 FHA adjustable rate. The first five years of the ARM generates a $113.47 a month savings which accumulates to $6,808.20. In addition, due to faster amortization on lower interest rate loans, the unpaid balance at the end of five years will be $3,001 lower on the ARM for a total savings of $9,801.
Assuming the adjustable-rate mortgage was to escalate the maximum allowed at each period, the breakeven would occur in 8 years and 6 months. If a person were to sell the home prior to this point, the ARM would provide a lower cost of housing for the homeowner.
For some people, the uncertainty of how the interest rate may change is not acceptable. On the other hand, for the risk tolerant individual who may be more confident in financial matters or who may know when they?ll be moving next, the ARM can be a smart choice.
To make projections using your individual numbers, see the Adjustable Rate Comparison.
A lifetime Maryland resident, Susan Pruden has the ideal foundation for selling and buying homes. After 8 years working in just about every facet of the mortgage industry, and several years with her own company specializing in marketing for real estate agents, Susan got her real estate license in 1994. Susan has earned several industry awards. The CENTURY 21 Quality Service Pinnacle Award is based on reviews from Susan's clients and is earned by a very small percentage of agents. She has earned that coveted recognition since 2012
Two others were awarded by the Prince George's Association of REALTORS®. The Distinguished Sales Associate of the Year Award is based on a mixture of community involvement, association involvement and real estate education and designations. The other, the Distinguished Service Award, is for "exceptional meritorious service."
Susan is involved in her local community. She was named Cheverly Volunteer of the Year in 2018, even having June 25th designated "Susan Pruden Day" in the Town of Cheverly. She is also a Commissioner on the Prince George's County Historic Preservation Commission and President of the Cheverly American Legion Auxiliary.
Susan Pruden has lived in Cheverly lived with her husband, Joseph, for almost 30 years.
