Adjustable Rate Mortgages from Smart Mortgage Centers
Loans with adjustable rates have become somewhat less popular in recent years, but they remain an excellent option for many homeowners. An adjustable rate mortgage, or ARM, offers a fixed rate for a period of time, most commonly 3, 5, 7, or 10 years. After the introductory period ends the interest rate for the loan will adjust up or down depending upon the current rate of the loan's index plus the loan's set margin. The benefit is that the initial rate is generally lower than a comparable fixed rate loan (although this is not always the case). To find out what today's low ARM rates are, request a quote from Smart Mortgage Centers.
Is an adjustable rate loan right for me?
There are many situations that warrant considering an adjustable rate mortgage. These include:
Someone who plans to only own their home for a few years because they relocate often for work.
A growing family that plans to buy a larger home in a few years.
An investor who buys properties, renovates them, and sells them a couple of years later.
Unlike fixed-rate mortgages, ARMs have varying interest rates, which also affect the amount of the monthly payment. They are attractive because they typically begin with an introductory fixed-rate period that often offers much lower rates than those for fixed-rate loans. The preliminary rate period can be as short as one month or extend over 10 years. In the past, the most popular adjustable rate mortgage programs allowed borrowers to lock in on an interest rate for one year only. Today, the more popular ARMs have longer fixed periods. Examples of those are 3/1, 5/1 and 7/1 ARMs. The first number represents the number of years that the rate will go unchanged (the introductory rate period). After that, the rates will fluctuate. ARMs do come with rate caps that serve to protect borrowers from having to pay beyond their means should rates skyrocket.
First discuss all the ins and outs of the type of ARM you are considering with a licensed mortgage professional. Leave no stone unturned and understand when the initial rate changes, exactly what the worst-case scenario could be. Then examine these 3 points:
How long do you plan to own the home? If this property purchase is for the long haul, then a 30-year fixed rate loan may be a better choice. Taking advantage of the low mortgage rates that go into effect during the initial startup for an ARM can be great for those that plan on owning the home only a few years. The idea is that you'll receive the perks of home ownership, lock in on an affordable rate for a few years, and then sell to relocate or upgrade before the rates go up.
What is your employment status? In the present economy, this is a tough question. However, if you are not secure within your current job, signing on for an ARM is a risky venture. Can you safely plan to pay more for your mortgage in 3, 5, or 7 years, because you know that your salary will increase?
Would you be more comfortable with a fixed rate? Many of us prefer the predictability that a traditional 30-year fixed rate mortgage offers. Fear of the unknown is something to consider for anyone thinking of financing with an ARM. However, there are those individuals who feel comfortable with this type of arrangement. In some markets where home sales are picking up, choosing an ARM could be a very savvy financial move.
How to shop for an adjustable rate mortgage.
Adjustable rate mortgages do carry some risk. If you continue to hold the mortgage past the initial fixed rate period it can adjust upwards. It is important to look at the adjustment frequency and the adjustment cap structure. The adjustment frequency is how often the ARM rate adjusts - generally annually. The cap structure dictates the amount the interest rate can increase - a common example is 5/2/5, meaning the first adjustment can be as high as 5%, subsequent adjustments can be as high as 2%, and the total adjustment over the life of the loan can be as high as 5%.
Your Smart Mortgage Centers loan consultant will work closely with you to ensure you understand all the aspects of your mortgage loan, and that it will meet your goals. Call today at 888-416-0920 or hit apply now.