A question by anonimous : I am planning to buy a new house, I was advised to make use 3 year fixed rate mortgage. What are your views on this??
Best answer: A three year fixed-rate mortgage stay with the same interest rate for three years.
Provide a response using the comment section. After review we will update the answers.
“adjustable Rate Mortgage (ARM). The rate is fixed for the first three years. After that, the rate adjusts once a year.They are a roll of the dice. A lot of times, the initial rate is low enough to allow someone into a home they otherwise could not afford – such as when they are starting out in their career. Three years down the road, they may be earning enough to easily afford the mortgage at market rates.The gamble is that rates do not go up significantly over the years. Because it will go up on the first adjustment, as the start rate is usually significantly below the market.We bought our current home with a 3/1 ARM when the market rates were about 10%. Our start rate was 7.5%, with a yearly cap of 2% – the increase could be no more than that. Pay close attention to the cap, if there is no cap, steer clear. After the 3 years, the rate went to 9.5%, and it got as high as 11.5% over the next 3 years before it started heading down along with the market rates. It turned out be a good deal for us because we could not have bought at 10%. By the time the rates got t at high, we were making more money and had no problems..”Curtis
“It’s probably a 3/1 Aif you are availing creative financing you cannot afford a home Save more down payment otherwise get a fix rate loan only. I’m guessing they said 30 year fixed mortgage; not a 3 year fixed mortgage. A fixed mortgage means you get approved for a loan today and the same interest rate is used for the life of it. A 30 year mortgage means you have set payments on a 30 year schedule. After 30 years it should be paid off.The other option is an ARM, or Adjustable Rate Mortgage, which has a rate which changes over time. In some markets you can get a better initial rate, but that rate can, and usually does, rise making your payments unpredictable from year to year.”
“Assuming you do mean a 3 year and not a 30 year fixed rate mortgage: I would not do that. Why? Because in three years, the interest rate will likely be variable/adjustable, which means it could go up substantially (there should be a “ceiling” clause, which states the variable/adjustable interest rate will not go over, say, 17% or more than 3% in one year) LOOK FOR THAT VERBAGE in the fine print, please.Think. Let’s say your 3 year fixed interest rate is currently 4.8% and it jumps to 7.8% in year four and then 8.9% in year five. That could be a mortgage payment increase that you simply cannot afford. So, think ahead so you know what you may be in for in the future. Assuming you are talking about a fixed 30 year mortgage….I would do that in a heartbeat because the mortgage (borrowing part) of your payment will never increase. Howsoever, property taxes only increase as will your hazard homeowner’s insurance over time, which will increase your mortgage payment because the mortgage company collects from you and then makes payments to your insurance company and pays your tax bill. This insures that the bank is assured that the house is insured in the event of damage claims and will not be repossessed and sold to pay unpaid overdue property taxes. A 30 year fixed mortgage can easily be refinanced if and when the interest rate goes down below the rate you are paying.”