Is it best to rent or own my residence?

The decision to own or rent is a personal decision. However, there are significant advantages to home ownership. For example, purchasing a home allows the homeowner to build equity, increasing net worth. This equity can be used as collateral for home equity loans. The interest portion of a mortgage payment may be tax deductible, reducing new homeowners' tax liability significantly. For homeowners with fixed rate mortgages, they can be assured that the principal and interest portion of their housing payment will never increase. Most important, homeowners have the greatest freedom to use and improve their property as they see fit. If you have any.

What is the difference between fixed rate and adjustable rate mortgages?

A fixed rate loan is when principle & interest payments never change during the life of the loan. On an adjustable rate loan the interest rate can change periodically. The changes in the interest rate are reflective of changes in market interest rates. Adjustable mortgages usually offer lower initial rates than fixed rate mortgages, but can adjust upward if interest rates go up. There is a predefined cap, which limits how high the interest rate can adjust. Fixed rate mortgages are beneficial to those who are on a fixed income (adverse to interest rate change) and those who prefer fixed payment schedules. Adjustable rate mortgages are advantageous for those who do not plan to stay in their home for a long time, for those borrowers who do not qualify at higher fixed interest rates and those who can financially handle fluctuating payments.

 How do adjustable rate mortgages work?

There are many types of adjustable rate mortgages, but all have some common features. One common feature of adjustable rate mortgages is an interest rate change that occurs after a stipulated number of payments have been made. The interest rate can increase or decrease depending on how the new interest rate is calculated. Typically, the interest rate change is based upon a predetermined index value and a margin. If a mortgagor currently has an interest rate that is pending adjustment, the new rate would be calculated by adding the current index rate and a margin. For example, if the mortgagor's current rate were 6.000% with a 2.000% margin, the new rate would be determined by adding the current index rate (5.000% as an example) to the margin. In this example the new interest rate would be 7.000%. The maximum amount the interest rate can change during any adjustment period is usually fixed. This maximum adjustment is called the "cap." Adjustable rate mortgages also have a lifetime cap, preventing the interest rate from exceeding a predetermined rate.