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Should you get a fixed-rate mortgage in Minnesota?

You can get a fixed-rate mortgage or an adjustable-rate mortgage when buying a new home. One of the most common questions that new home buyers have is which one they should use.

First off, you should know the difference. With an adjustable-rate loan, you generally are going to be handed a very nice, low interest rate to start. It only lasts for a set duration, though, such as five years. After that, the interest changes to reflect what is common in the market at the time. With a fixed-rate mortgage, you just get one rate from beginning to end, even if you pay for 30 years.

Typically, when rates are already low, it is best to go with this second option. You may as well lock in the low rate, knowing it's more likely that rates will rise in the future. Even if they drop for a short time, you're counting on an overall long-term rise, which means you'll have a good deal with your locked-in rate.

If rates are high, the adjustable option could be best. You start out with a low rate, which is nice when others are not getting the same, and you expect the overall rates to fall in the long-term. You may see a jump at some point, but you're hoping they drop and you don't want to be locked into double the going rate in ten years.

The adjustable option can also be good if you're only going to stay in the house for 3-5 years anyway, meaning you'll sell and get a new mortgage before your rates increase to match the market.

No matter what you decide, remember that the mortgage process can be long and complex. Be sure you know what steps you need to take as you work your way toward that home purchase.

Source: Fool, "15 Mortgage Questions and Answers for First-Time Homebuyers," Matthew Frankel, accessed Oct. 06, 2016

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