Is and ARM the right loan
Is an ARM the right loan for me? - Deciding if an Adjustable Rate Mortgage (ARM) is right for you will depend on your personal financial situation. Once your financial goals are decided then the terms of the ARM will also come into play with your decision.
Keep in mind that you will have to pay closing costs if you'd like to refinance that ARM into a fixed rate mortgage. If you originally bought the home with little or no money down, you may not have enough equity in your home to include the closing costs when it comes time to refinance.
It is important to compare the rates on the different types of ARM's regardless of how long you plan to be in the home. For example even if you are planning to move in 3 years, you may be able to get a better rate on a 5 year ARM than a 3 year ARM.
The advantage of an Adjustable Rate Mortgage (ARM) is that in most cases it offers a lower interest rate than its Fixed Rate counterpart. However, in some economic climates where the shorter interest rates are not lower than long term rates, such advantage is wiped out, and getting an ARM actually offers no benefits.
One of the most important things to think about when considering an ARM on your property revolves around how long you plan to keep the home. It's common now for homeowners to not plan to keep the home for more than 3-5 years. If this applies to you, taking a 3-year or 5-year ARM can significantly lower the interest rate on your home, saving you money each month over the typical 30-year fixed program.
How tolerant are you to risk? Fixed rate mortgages offer security because the payment does not adjust, but this peace of mind comes at a cost: fixed rate mortgages often carry a higher interest rate than an adjustable rate mortgage. If you are confident that you know how long you will be in your home, or if you like the idea of increased cash flow due to a lower mortgage interest rate, be sure to ask your mortgage broker if an adjustable rate mortgage makes sense for you.
Benefits of an ARM - An ARM allows you to receive more money at a lower interest rate than a fixed rate loan. If you are planning to move within a few years, you can save money and avoid rising payments.
Many investors choose adjustable rate mortgages on houses they will be rennovating for resale. The lower start rate means a lower monthly payment and increased cash flow. Many investors plan to resale the house in a short period of time so rate adjustment isn't an issue.
Adjustable Rate Mortgages start out with a lower payment than fixed rate mortgages, with the possibility of adjusting higher in the future if interest rates rise. This can be beneficial if you want the lower payment now, but expect your salary to increase in the future.
If you would like to lower your monthly mortgage payment to be able to apply more money in other places of your life an ARM loan may be right for you. An ARM loan should provide you a much better interest rate than a fixed rate loan, therefore giving you a lower payment each month. This in turn will free up some money each month in order for you to use the money where it is needed more at this time.
If you only plan on being in your home for a short period of time, then an ARM can be advantageous to you. If you know you will only be in the home for 3-5 years, then you would be better off taking a 5 year ARM. The lower interest rate that it offers will save you hundreds of dollars while in the home.
When considering an ARM loan you should take into consideration your lifestyle and future goals. ARM loans can benefit you with the reduced interest payments because of a lower interest rate which will allow you to invest more money into principal reduction and other valuable investments.
The fixed interest rate portion of an ARM can be as short as the first month of the loan, or be fixed all the way up to the first 10 years of the loan. Depending on how long you are going to be in the property you can choose an ARM . Each ARM also has different guidelines regarding how much the the interest rate can fluxuate at each adjustment, and what the lifetime maximum and minimum interest rates are for the loan. If you think that you are likely to see the adjustment period you should look at these numbers since they will control how quickly your payments can go up or down.
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Information listed above is to be used for educational purposes only and is not guaranteed