Again ..Fixed and ARM

Yesterday we posted advantages. Today we discuss disadvantages of
both the Fixed and ARM type of mortgages.

Fixed: o More income needed to qualify because of higher initial
mortgage rate. o If interest rates decrease appreciably, it will be
necessary to refinance to get a lower payment and refinancing is an
expensive process. o If you need to sell your house within 5-6 years, you
will make unnecessarily higher payment than what you would by going
for ARM.

ARM: o If interest rate increases after a specified period, your payment
will also increase (but not more than 2% in a year). o A large increase in
rates - and payment - may make your house unaffordable for you.

Even though we are talking about disadvantages today, let us also
indicate again that in ARM option, you will make lower payments in initial
years. So, even if the ARM rate increases after that, you may get some
more years' time to break-even with higher payments that you would
have made by selecting a Fixed rate. So, if the difference in rates of ARM
and Fixed is quite a bit, it is worthwhile going for ARM and save money
now rather than later. Whatever you do, always keep the refinancing costs
in mind. It's not cheap.