One of the biggest questions for homeowners to consider when shopping for a home loan is what type of loan to get: a fixed-rate or adjustable-rate mortgage. Conventional wisdom says that if interest rates are about to go up, you want to get a fixed-rate mortgage and lock in your interest rate. However, if interest rates are stable or likely to drop, an ARM is the best choice, as it enables you to take advantage of dropping interest rates.  

The truth is: it’s virtually impossible to predict where interest rates are going. Investment professionals have a difficult time predicting interest rates, so why should the average homeowner be expected to have magical knowledge about where interest rates are going?

Even if you can predict how interest rates are going to behave short-term, it’s impossible to plan for long-term economic changes or forecasting. Within the past decade, the housing market was in great shape and the economy was booming. On the other hand, the past few years have been tough, with a sudden, sharp decline in the housing market and an unpredictable economic downturn.

Does this mean you shouldn’t buy at all?

No! It simply means that you can’t predict what’s going to happen with the economy long-term. Realistically, if you keep a 30-year mortgage for the life of the mortgage, you’re going to go through both economic upturns and downturns. Interest rates will drop and rise. It’s impossible to gamble on whether rates are going to spend more time up or down, so don’t choose a mortgage product by gambling on rates.

Look at your short-term and long-term goals, and choose a mortgage product that fits those goals. Don’t try to predict interest rates; look at where you are today, and where you plan to be in 3 years, 5 years, 10 and 15 years. Use your existing financial circumstances, growth potential and future goals to select the right mortgage product. Leave the interest rate gambling to the investment professionals who aren’t betting with your home.