     Samantha | Thursday, February 03, 2000 - 02:21 pm 
I am looking to buy a condo in the Boston area, and anticipate a mortgage in the $150k to $200k area. I have spoken with several mortgage companies, and have spoken about both fixed and variable mortgages. Does anyone have any opinions/feedback? While the fixed rates are somewhere around 1.5% higher, I don't feel comfortable knowing that in 5 years, the going rate goes. I also don't have a feel for the cost of refinancing (received different stories from different people). Any insight/recommendations?
Thanks! |
| rcb (Rbielak) | Friday, February 04, 2000 - 04:01 am
A fixed rate is what society has accepted as "normal" or "usual", but with today's economy, it's not always the right way to go.
Basically, if you plan on being in the home forever, are on a fixed income or are simply too jittery about a possible fluctuation in interest rates every x years, then you should opt for a fixed rate mortgage. You'll pay more in the short term, but it could save you troubles of refinancing if the economy takes a real downturn.
If you plan on staying in the home for a long time (10+ years), paying points for a lower rate can provide benefit as well. When rates are down, many folks go fixed simply to avoid the hassles and don't worry about an extra 3/4 percent when they're paying 6%.
If you are NOT going to be in the home very long (3-5 years), have cash reserves to help you through a possible rate increases down the road, and are not on a fixed income, then a variable program can greatly benefit you. Some can (initially) shave 1-2 percent off your quoted rate. If times are good, if the future doesn't look like rates will go up anything drastic and you're going to be in the house for a short period of time, a variable can save you $$$. If you are going to only be in it a short period of time, don't pay points, as you won't be in the home long enough to recoup the costs.
While the fixed rates are somewhere around 1.5% higher, I don't
feel comfortable knowing that in 5 years, the going rate goes.
This can be bad or it can be GOOD! Rates can drop and if you're in a fixed, your stuck with it or with refinancing, which can cost several thousand dollars - which means you've got to commit to atleast another couple of years or so in the home in order to recoup the costs of the refinance with the savings on the monthly payment.
It's a double-edged sword. You have to decide how risky (or not) you are, and how long you plan on being in the dwelling and just how much cash reserves (or other means of paying) you will have in the event that rates go up substantially and your monthly payment is more, if you're on a fixed income, etc.
Be careful with variable programs. Make sure you understand any and all penalties or limits as to when you can refinance. |
