Hello & Welcome Back to #FabulousFriday! Despite what you might hear on the news, people are still buying homes every day. However, in the current real estate market home ownership might be a pricey proposition. More than a few buyers may need to find alternative ways to get into a property. In this environment adjustable-rate mortgages (ARMs), which offer a lower introductory interest rate than a traditional fixed rate mortgage, may be an appealing alternative.
Should You Get An ARM?
With all the jargon and options out there, it’s no wonder first-time home buyers’ heads spin. Even seasoned veterans have a hard time keeping up with all the different ways to get into four walls and a roof. One of the most popular ways, it seems, is the Adjustable Rate Mortgage (ARM) because the initial interest rates and closing costs are typically lower than fixed-rate loans. Let’s look at the pros and cons to ARMS and the different options available within this category of home loan.
What is the major difference between a fixed rate loan and an adjustable rate loan? It’s where the risk falls. The lender assumes the greater risk with a fixed rate mortgage because no matter how high interest rates go, the borrower’s interest is locked in for 30 years. That’s why fixed interest rate loans have higher interest rates. ARMs, however, put the risk squarely on the borrower.
The ARM might be the financing you’ve been looking for if:
You’re looking to minimize your monthly payment.
You’re seeking to lower your interest rate and monthly cash flow.
You want to take advantage of the equity in your house. This is a good refinance program for those who want to consolidate consumer debt such as credit cards.
Any ARM is a good idea if:
ARM interest levels are significantly below fixed-rate interest charges
You won’t be staying in the house for more than five years (especially if you have a locked-in rate for the first three, five or seven years)
You anticipate a higher income in the future (such as a young professional just starting out)
ARMs are not a good idea if:
*Initial rates are comparable to fixed-rate loan rates
*High closing costs offset the low interest rate
Be sure to contact your loan officer today. He/she/they can answer all your specific questions about adjustable rate mortgages and whether or not an ARM is right for you.
Check back next Friday for more helpful real estate tips and tricks. See you soon. Warmly, Susan