The current average interest rate is at a historic low, making fixed rate mortgages appealing. However, some borrowers are better suited for an adjustable rate mortgage (ARM), which is explained here. An ARM is a mortgage in which the interest rate changes periodically, usually in relation to indexes and margins that are determined by the state of the economy. Payments go up or down accordingly.
Adjustable Rate Mortgage Quick Facts
- There are 3-,5-,7- and 10- year adjustable-rate mortgages
- ARMs offer borrowers initial interest rates that are substantially lower than fixed rate mortgages
- Longer term ARMs (7yr and 10yr) are structured in ways that make rate increases more predictable for borrowers
- We offer Interest Only ARM loans as an option for those who qualify
Adjustable Rate Mortgage Pros and Cons
Why would you want an adjustable rate mortgage? An ARM generally carries a lower initial interest rate that allows a borrower to more easily qualify. The initial start rate is lower for a fixed amount of years. Home Loan Solutions offer 3, 5, 7, and 10yr ARMS, which is standard for the industry. This means that an initial start rate is fixed for a period of 3, 5, 7, or 10yrs depending on which program you choose and the adjustment period begins after your fixed period expires.
The advantages of an ARM loan must be weighed against the risks a borrower would assume. The biggest risk with an ARM is your interest rate will most likely increase when your initial fixed period is up, leading to higher monthly mortgage payments. Home Loan Solutions encourages a borrower to understand all of the risks associated with an ARM before making a decision. We can structure these loans in a manner that make rate increases slightly more predictable but borrowers must be prepared for those increases in advance.
Is an Adjustable Rate Mortgage for You?
An adjustable rate mortgage is sometimes the best option for a borrower. Those borrowers must be prepared for potential interest rate increases, which mean an increased monthly mortgage payment. If your income is substantial enough to bear this added expense, or you plan on retaining your home for a short term period, then you may be a good candidate for an adjustable rate mortgage.
Whatever the scenario is, Home Loan Solutions can assess your needs and offer an adjustable rate mortgage as an option to borrowers who are good candidates.
To learn if an adjustable rate mortgage is right for you, contact Home Loan Solutions today. Our friendly staff will be glad to discuss these options with you.