What are Adjustable Rate Mortgages (ARMs)?
What you need to know about adjustable rate mortgages...
- The rate is fixed only for a predetermined time (chosen from 2, 3, 5, 7 or even 10 year terms). After which the rate will adjust per year (or depending on the loan program) equaling the index plus margin selected at the start of the loan.
- Advantage of an ARM is typically they carry lower rates than the fixed rates available at that time.
- Disadvantage is that the rate will adjust after the fixed period and you have no way of telling which way it will adjust.
Choosing an ARM really depends on your individual situation
- Will you move within 5 years? If you know that you are going to sell your home soon and do not need the security of a fixed rate and want lower payments then an ARM would be right for you.
- Do you anticipate refinancing again in 3-5 years? This has become more common over the past 5-6 years with interest rates dropping as much as they have. You can save yourself a good deal of money by taking an ARM instead of a Fixed rate mortgage for those years. However there should be a valid need and benefit to refinance; lowering payments or obtaining cash for improvements or debt consolidation.
So when its time to choose between an ARM and fixed rate mortgage you really need to ask yourself what is your plan after that fixed rate period of the ARM. Get help from professional mortgage companies and they will walk you through the decision making process.
Related Mortgages - Mortgage Rates articles
- Mortgage Rates
- Interest Only Mortgages
- Fixed Rate Mortgages
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