Is an ARM the Right Loan for You?
Adjustable-rate mortgages (ARM's) aren’t for every borrower in every situation, but an ARM may be a viable solution for many borrowers.
When deciding between a fixed-rate mortgage and an ARM, you’ll need to look carefully at each loan’s pros and cons. With a fixed-rate loan, a borrower will have a set payment each month for the life of the loan and will not have to worry about future interest rate increases. However, peace of mind will cost more as fixed-rate loans do have higher rates and fees in most cases. In contrast, adjustable-rate mortgages have lower initial interest rates, but there is a potential for higher monthly payments if interest rates go up.
So when is an adjustable-rate mortgage a good option? Usually, an ARM may be a good choice in one of two scenarios: One, if you don’t plan to be in your home for a long time (for less than ten years, usually) or two, if you expect an above-average increase in your income in the near future. If you’re not going to be in your home for a long time, an ARM can be a smart short-term solution because it can function as a fixed-rate loan at a less expensive rate and you won’t need to worry about the loan resetting or interest rate fluctuations affecting your monthly payments—as long as you no longer have that loan when the initial rate period ends. As for an increase in income, if you know you’ll be able to afford the higher payments if and when your loan adjusts—even if interest rates rise—an adjustable-rate mortgage might be a good money-saving tool.
However, if you’re not sure how long you plan to be in your home or you’re not sure that your income will be increasing in the near future, a fixed-rate loan may be a better choice for you. Also, keep in mind that you’ll need to have good credit to qualify for many types of adjustable-rate loan products and many lenders will require a larger down payment.
As with all mortgage products, be sure to consult with your mortgage professionals before making a decision on which loan is right for you. Elite Financing Group