Why Should I Get An Adjustable Rate Mortgage?
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Many borrowers are given an adjustable rate mortgage (ARM) but often times this type of mortgage may not be right for them. The interest rates on Adjustable rate mortgages fluctuate depending on which index is being used to calculate the rate. The typical adjustable rate mortgage (ARM)often have fixed periods of 2 to 5 years where the rate stays the same. However, after these fixed periods the rate may jump substantially. Borrowers should only get into an ARM after thinking it over very carefully.If you know that you will be living in the subject home for a long time, an Adjustable Rate Mortgage (ARM) is usually not a good option. Fixed Rate Mortgages (FRM) are often better for home buyers who will be keeping the mortgage for most part of the loan term.
If you know you will be living in the home for only a couple years, or you will be refinancing within the next few years, an ARM loan may be your best option. They generally have a lower interest rate than fixed rate mortgages, during the initial fixed period. A lower rate means a lower monthly payment.
Make sure that you fully research your options with ARM's. If you plan to sell in four or five years, a 2 year fixed loan would probably not be best for you. On the other hand, a 30 year fixed might have too high of an interest payment, while a 5 year fixed ARM sounds just about right.
If you are getting an Adjustable Rate Mortgage then you will want to make sure that you know how your mortgage will adjust. For instance some mortgages can adjust up to 5-6 percent after the initial fixed period meaning that your payment could dramatically increase right away instead of gradually increasing. So make sure to ask what your caps, margin and index are for your ARM.