Author: Ryann Cairns
You can visit the Authors Website Here: www.sosdebt.org
One of the most frequently asked questions among both first time home buyers and those moving up to a bigger home is whether to take out a traditional fixed rate mortgage or go with a variable rate mortgage instead. While this can be a complicated question and the answer will generally be determined by the direction of interest rates, this article will try to answer that time honoured question and give you some background on your adjustable rate mortgage (ARM) options.
Typical fixed rate mortgages charge a fixed interest rate throughout the life of the mortgage, generally for either 15 or 30 years. An adjustable rate mortgage, on the other hand, features interest rates that fluctuate with the general direction of interest rates. When interest rates change, the home buyer's monthly mortgage payment changes along with it. When should home buyers consider an adjustable rate mortgage?
An adjustable rate mortgage makes sense if the home buyer believes that interest rates will either remain stable or decline over the life of the mortgage loan. If interest rates move downward, so will your monthly mortgage payments. In addition, an adjustable rate mortgage can be an attractive option for short-term mortgages. If you will not be in your home more than a few years, an adjustable rate mortgage may be a good option for you. An adjustable rate mortgage allows home buyers to take advantage of the initial lower interest rate and use the appreciation in home prices to potentially save a lot of money.
What are the main components of an adjustable rate mortgage? The three major components to any adjustable rate mortgage are:
Watch out for this feature, as many lenders will not fully disclose the interest rate of the lock-in until you already have the mortgage loan. An adjustable rate mortgage is not for every borrower. But for certain homeowners it can be the right move.
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