Many borrowers now find adjustable-rate mortgage (ARMs) appealing because of its low introductory rate. Compared to the typical rate of 30-year fixed rate loans, ARMs have a lower initial rate. The initial or introductory period can end after a year or so, depending on the terms of the mortgage. After this, the rates may either increase or decrease depending on the market trends.
Is it Right for You?
ARMs are best suited for borrowers who don’t intend to keep the house longer or plan to sell it before the rates adjust. Mortgage companies in Lake Oswego note that if you’re just buying a starter house instead of a “forever home,” an adjustable-rate mortgage may be right for you.
Generally, it’s best to know a few basics about ARM to find out if they are a good fit. You may want to know about the adjustment period or the time between the rates fluctuate. If your ARM, for instance, has an adjustment period of one year, you rate and payment would adjust once each year.
If you, on the other hand, consider a hybrid ARM like 5/1 loan, your rate will be fixed for the first five years, with rates resetting every year after that. A 5/1 ARM is worth considering if you’re planning to sell in five years. The low rates could offer you the opportunity to save for a new car or college education.
Are ARMs Really that Risky?
It is noted that when rates increase, your monthly payment will also increase, which can add some financial difficulties if you’re not prepared or if you cannot afford to make the new payment. But then again, the rates are capped and cannot increase more than a certain amount from year to year.
ARMs, however, can still make sense even if the rates are rising. Again, this could work if you don’t intend to keep the property long enough for the initial rate to end. Just be sure that you’re prepared, especially if the house doesn’t sell as fast as you like or if you change your mind and decide to keep the house. In the latter case, you may refinance to a fixed rate mortgage.
ARMs may be considered risky, but they don’t have to be as long as you take into account how long you plan to keep the house or understand what happens when the rates change. Talk to a reliable mortgage lender to learn more about ARMs and other loan options.