What are adjustable-rate mortgages and how do they work?
An adjustable-rate mortgage, or ARM, is a type of mortgage that has an interest rate that can change over time. The initial interest rate is usually lower than that of a fixed-rate mortgage, but it can increase (or decrease) periodically, typically in relation to an index such as the prime rate. This makes ARMs attractive to home buyers who plan to stay in their home for only a few years, as they can save money on interest payments in the short term. However, if interest rates rise significantly, the monthly payments on an ARM can become unaffordable. As a result, home buyers should be sure to understand how ARMs work before deciding whether one is right for them.
The benefits of ARMs
ARM loans are a great choice for home buyers who don’t plan to stay in their home for more than 5 years. These loans offer lower interest rates than fixed rate mortgages, and the monthly payments are often lower as well. In addition, ARM loans may be easier to qualify for than fixed rate mortgages because they have a lower initial interest rate. This makes them more affordable for home buyers who might not otherwise be able to qualify for a loan.
The risks of ARMs
ARM loans can be appealing to home buyers because they often start off with lower interest rates than fixed-rate loans. However, there are several risks that come with ARM loans that buyers should be aware of. For one, the monthly payments can increase if interest rates go up, which can make it difficult to afford your mortgage payments. Additionally, ARM loans typically have shorter terms than fixed-rate loans, so you may end up having to refinance sooner than you anticipated.
When is an ARM a good option for you and when is it not?
ARM loans can have lower interest rates than fixed-rate loans at the start of the loan, but the interest rate could go up in the future. For this reason, ARM loans are attractive for home buyers who expect their income to increase over time or who plan to sell their home before the interest rate adjusts. ARM loans may not be a good option for home buyers who want the stability of a fixed interest rate or who plan to stay in their home for a long time.
How to choose the right ARM for your needs
ARM choices can be confusing for home buyers. How do you know if an ARM is the right choice for you? The first step is understanding how an ARM works. Some ARM products have interest rates that are fixed for a certain period before they adjust, while others adjust periodically throughout the life of the loan. You’ll also need to decide what type of ARM product you want. There are a variety of ARM products available, each with its own set of features and benefits. To find the ARM that’s right for you, talk to a loan officer about your specific needs and goals. They can help you compare ARM products and choose the one that’s best for you. Things to watch out for when signing up for an ARM
Things to watch out for when signing up for an ARM
Adjustable-Rate Mortgages can be a great option for home buyers who are looking to save on their monthly mortgage payments. However, there are a few things that ARM holders need to be aware of to avoid any potential pitfalls. First and foremost, ARM rates can change over time, which means that your monthly payment could increase without warning. As such, it’s important to have a plan in place in case your ARM rate increases. Secondly, ARM terms are typically shorter than fixed-rate mortgages, which means that you’ll need to refinance at some point down the line. Finally, make sure you understand how the interest rate is calculated – some ARM loans have a margin that can add to the cost of your loan. However, if you’re aware of these potential risks and take steps to mitigate them, an ARM can be a great option for many home buyers.
Leave a comment with your biggest question – or call me, Siobhan Blake, directly at 614-371-2727 to get some expert advice!