Interest rates can affect the type of mortgage you choose and dictate when its wise to make a change. Here are a few of the factors that can be affected by a swing in interest rates:
Choosing a mortgage
When interest rates are rising, a fixed-rate mortgage is usually a good choice, since it locks in the current rate and protects you from the higher rates to come. When rates are falling, an adjustable-rate mortgage (ARM) becomes more attractive, as its interest rate changes periodically (usually every one, three, or five years), allowing you to benefit from the new, lower rates.
Some people choose an ARM even when rates are rising. This is because the interest rate on an ARM is substantially lower — as much as two percentage points lower than that of a 30-year fixed-rate mortgage. That means youll pay less until mortgage rates have increased a full two percentage points. After that, youll pay more than a fixed rate.
There are also hybrid ARMs, which have a fixed rate for a certain time period — typically three to 10 years — and then become adjustable. (A 5/1 ARM, for example, has a fixed rate for five years, after which the interest...
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