Best fixed rate home Loans 3 years

As its name implies, an adjustable rate mortgage (ARM) is one in which the rate changes (adjusts) on a specified schedule after an initial "fixed" period.

An ARM is considered riskier than a fixed rate mortgage because your payment may change significantly. In exchange for taking this risk, you are rewarded with an initial rate that is significantly below market rates for 30-Year Fixed Rate Mortgages. The more frequent the rate adjustments through the life of the loan, the lower the initial rate. Even after the loan adjusts, new rates will typically be below rates being offered to new borrowers for the 30-Year Fixed Rate program. Obviously, it's best to have an ARM when interest rates are predicted to fall (not rise) because in periods of rising interest rates, it is possible that you will ultimately pay much more for an ARM than for a 30-Year Fixed Rate Mortgage.

Although somewhat riskier than a fixed rate mortgage, an ARM may benefit you if you have certain needs or find yourself in certain circumstances. In other circumstances, you may be better off with a fixed rate or other type of mortgage. Examine your financial and life situation with the help of your loan officer or financial advisor.

An ARM can give a short-term "boost" to your finances

Having a low initial fixed rate can free up some money early in your loan term.

For the purpose of illustration, we'll assume a one-year ARM. This is a 30-year loan in which the rate (and therefore your monthly payment) changes every 12 months on the anniversary of your loan.

We'll assume a 30-year fixed rate with zero points and a rate of 7.625 percent compared to a one-year ARM with zero points and an initial rate of 5.625 percent.

On a $240, 000 loan amount, the 30-year fixed rate would yield a monthly payment of $1, 698.70. The one-year ARM would yield a monthly payment of $1, 381.58. That's a difference of $317 per month, or $3, 800 over the next year.

What could you do with an extra $3, 800 this year? Some borrowers find the extra money useful for paying off other credit or moving expenses, for landscaping the yard, remodeling the bathroom, and so on. Of course, you will want to stay away from incurring additional debt or improving your lifestyle to the point that you can't afford the higher payment once your rate adjusts upward.

An ARM can allow you to qualify for "more house"

Obtaining an ARM can allow you to qualify for a higher loan amount and therefore a more valuable house.