A Guide To ARM Mortgages
|July 17, 2009||Posted by derek under Loans|
What is an ARM Mortgage?
ARM, or “adjusted/adjustable rate mortgage”, is a mortgage with a fluctuating interest rate that varies in accordance to the market. So, in the beginning of your mortgage, while you might pay a lot of interest, should the market drop, so will your interest rate. This allows your mortgage payments to vary from month to month, depending on economic changes and the period with which your mortgage rate will be adjusted. For many borrowers, this is a very cost effective way to handle their mortgage payments, while also allowing them to save money.
The Benefits of ARM Mortgages
As previously mentioned, if you sign up for an ARM mortgage, you will find that your monthly payments will be much lower when interest rates are low. This would help a borrower to afford a higher priced home without having a higher monthly payment. Or, if you take the extra money you save and put it away in an interest bearing account, you will be able to make even more money while still maintaining the benefits of owning a home.
You will also find that ARM mortgages are readily available for a number of different potential home buyers. Even if you have bad credit, you might be able to find an ARM lender for your needs. Borrowers that can’t afford a high down payment will also find that there are ARM mortgages available to cover both the down payment and the actual house payment.
The Negatives of ARM Mortgages
The main concern with ARM mortgages is the fact that they transfer interest rate risk onto the borrower.
While you can save a significant amount of money when interest rates are low, there’s also an equal chance that your monthly payments will increase if there is an upswing in interest rates. Lenders such as Quicken Loans like writing adjustable-rate mortgages for this very reason. If you like to have steady payments that you can count on each month, then an ARM mortgage is not the right choice for you.
Those that don’t have access to a steady source of income, such as freelancers and the self-employed, might want to think twice before applying for an ARM as they may have trouble consistently making their payments every month.
However, if you are a person that can budget your monthly expenses particularly well, you will most likely find that the ARM gives you an opportunity to save more money than you would be able to with a fixed-rate mortgage.
In the end, it is best to consider your lifestyle and your financial history to determine which mortgage is the best choice for you. Sitting down with a mortgage officer to discuss your options is the best way to start the decision making process. ARM mortgages are right for many Americans, and they might just be the answer you have been looking for.