If you’re planning to buy property in Southeast Florida, you’re most likely planning to pay for it through a mortgage loan. Before you fill out any forms or submit any documents, you will need to decide whether to go for a Fixed Rate Mortgage (FRM) or an Adjustable Rate Mortgage (ARM). Both of these can be good choices for certain people, certain situations and certain locations, but which one should you choose when buying property in Southeast Florida?
When I set out to invest in Southeast Florida real estate, I chose to go for an FRM, but this does not automatically mean that is the right answer. My choice depended on a lot of factors, which may be different for you. This was last year, so mortgage rates were pretty low and it was a good idea to lock them while they were down, plus I wanted to get a one bedroom home in an affordable neighborhood. Lastly, I planned to keep this property for quite some time. If you’re confused, don’t worry, all of this will make more sense as we discuss these two mortgages in a bit more detail.
FRMs are as the name implies, fixed throughout the loan period. This means that the interest rate does not fluctuate according to market situations. This is obviously beneficial because you don’t have to worry about rises in your monthly payments in the future, but you also have to keep in mind current rates as these will be used to determine your rate throughout.
Nothing is perfect however, and with FRMs you will get higher interest rates than ARMs. However, FRMs were mostly their lowest in 2014 in Southeast Florida, almost the same as ARMs, which made it a good idea for me to go for an FRM. Another, downside is that you can’t really go for more expensive property, and a lot of your ideal homes may slip out of your budget as the high interest rate makes up a large portion of your down payment and monthly payments.
These are also known as floating-rate mortgages, and are made up of an index and a margin. The margin remains fixed, something like an administrative fee, and the index is a guide used to adjust the mortgage each month according to a current benchmark. Basically, your mortgage rate will fluctuate according to current market values.
ARMs stay fixed for 2-3 years and then start fluctuating, and this poses uncertainty for home owners in the long run as they may face higher monthly payments. However, they have to pay much less initially, and have lower interest rates as well so it is possible to afford much pricier homes.
This should make things a little clearer about my choices, and with this knowledge you can probably make a better decision about which one to go for. If you plan to only stay in this home for a short period, and buy a bigger home, you may want to go for an ARM as the initial payments will be much lower than with FRMs. However, if the home value doesn’t matter and you want a little certainty, FRMs might be best. Keeping the current mortgage situation in Southeast Florida in mind, FRMs might not be a bad idea, since the rates are just beginning to rise and this may pose a threat for those going for ARMs while providing an opportunity to lock in lower rates and enjoy them in the future for those with FRMs.