Fixed or ARM? Making the right choice

When it comes to refinancing, homeowners are faced with the decision of choosing which mortgage option is right for them.

Currently there are three options for homeowners to choose from. These options include a fixed mortgage refinancing plan, an adjustable rate mortgage (ARM)or they can choose hybrid loan the latter which is a combination of the two first option.

We will take a closer look at all three options so you can decide which one is right for you.

Fixed Option

A fixed option mortgage means that you are getting your mortgage loan at a fixed rate. This means that the rate will ultimately remain unchanged. Most customers who apply for a fixed rate when refinancing are those that have impeccable credit rating. The rate offers the homeowner maximum stability as they are able to pay the same amount each month without any changes. Unfortunately the downside to applying for a fixed rate option is that once you lock in to an interest rate with your initial application, you will not be able to benefit from the drop in interest rates should it happen.

ARM option

If you are considering the ARM option, it would mean that your interest rate from be inconsistent in that it can either raise or fall. Most people describe this option as a risky one since the homeowner is never really sure if the interest rates would be up one day or down the next. And this has proven to be a big disadvantage when it comes to refinancing your mortgage loan.

Hybrid Option

As we have explained before, the Hybrid option is a combination of both the Fixed and ARM option. With the Hybrid refinancing loan option, customers are able to get the best of both worlds in that the plan offers both fixed interest and flexible interest rates.

The combination loan is usually achieved when the loan is offered as a fixed option for the first few months of the loan’s life and it would then change into the ARM option for the rest of the loan.