Why buy the whole mortgage if you're only using half of it? You'll find plenty of very conservative people talk about the dangers of an Adjustable Rate Mortgage (ARM) and sometimes they are right. Although for the most part, today's ARM loans offer very favorable rates and terms. An Adjustable Rate Mortgage is a loan that has a fixed interest rate for the initial term. Initial terms can be anywhere from three to seven years. After the initial term the rate can go up or down every year based off the loans set index. There is always a cap set on how much the rate can go up or down in a given year and for the life of the loan and yes, often times the interest rate does go down. By having the rate cap in place you protect yourself from the horror stories people try to tell you about with the ARM loans. The benefits of an ARM Loan are the interest rate is usually a lot less than a twenty or thirty year fixed rate mortgage. In addition the closing costs of the loan will normally be less than with a fixed rate mortgage. When would you want to use an ARM Loan? Statistically speaking most first and second time buyers will sell their home and move within five to six years. So if you're a young couple buying your first home knowing it's just a place to start and your plan is to buy a bigger home in a few years you may want to look at a five or seven year ARM Loan. If you know you're at a point in your life where in the next few years you maybe getting married, having a baby, getting promoted or relocated for work you should look into an ARM Loan. You can enjoy the benefits of a much lower interest rate, lower closing costs and a lower house payment for the time your in the home. Remember that long term fixed rate mortgages favor the banks. They charge you more in closing costs and more for the interest rate knowing less the ten percent of home owners will keep that original loan until it is paid off. Take the time to educate yourself on the many loan options available to you and before you sign that thirty year mortgage ask yourself is it worth paying the higher rate if you're only going to use the mortgage for a few years. |
