Mortgage Choices - Adjustable Versus Fixed Rates

The housing market has imploded badly the last few years as the once red hot growth market collapsed. The real estate market hasn't exactly recovered strongly, but it has stabilized. For many, there has never been a better time to buy a home given the low prices. The question is whether an adjustable or fixed mortgage is the better choice.

At this point in this article, I would typically tell you the merits of each mortgage as well as the downsides. This article is different. Why? The mortgage market has never been in a stranger stance in our lifetime. The credit crunch has created demand, which would seem to suggest that banks could charge more in interest. In truth, the opposite has happened. We haven't seen rates this low and probably will not for a very long time once rates finally start to rise again.

So, what type of mortgage should you go with at this time? The answer is clear - a fixed mortgage. Yes, it is a bit more expensive than an adjustable to start out, but you are locking in an interest rate that is staggeringly low. As I write this, 30 year fixed rates start in the 4.6 percent range. It doesn't get much better than that and you would be wise to jump on such rates as quickly as you can.

Ah, but what if rates go lower? Well, they might go a bit lower, but not much more than that. There simply isn't room for it to happen. The Federal Reserve has its rates at zero more or less on short term borrowing. The bonds markets have been getting two and three percent returns on U.S. Treasuries, while noticing that the national debt is out of control. The risk associated with that debt is going to make it less likely that investors will buy U.S. debt in the future. The only way to counter that disaster is for the Fed to raise interest rates. Mortgage rates will soon follow.

A home is a place you live, but it is also a long term investment. Make sure to treat it as such. Lock in the low rates currently found in the mortgage market.

Barry Milton writes about financial planning for UFCAmerica.com.