Adjustable Rate Mortgage loans suffer from an identity crisis. Often portrayed as one of the villains of the housing crisis, the simple truth is that ARMs can be a financially savvy choice for mortgage shoppers. While some housing boom ARMs were designed with negative amortization and unrealistic ballooning payments, the hybrid ARM of today actually adjusts to market conditions after a set amount of time – typically 5 or 7 years – and is subject to reasonable maximum caps.
An ARM’s lower rate makes it an ideal choice for those who plan to stay in their homes for only a few years. And since Americans move every five years on average, the ARM’s low rate makes smart financial sense for many typical homeowners.
Even at the time of adjustment, ARM rates do not always adjust upward, but respond to market conditions. In fact, if you were in an Adjustable Rate Mortgage loan that adjusted anytime in the past 4 years, your rate would have gone down at the time of readjustment – not up – because of the low rate environment.
What Do Financial Experts Say About the Adjustable Rate Mortgage Loan?
We’re not the only ones to realize the benefits of an Adjustable Rate Mortgage loan. Several financial experts have been noting that ARMs make sense.
Personal finance diva Suze Orman lets her loyal fans know that ARMs can be a smart option for some. “If you plan on moving in a few years – say you’re a first-time buyer who hopes to trade up, or a retiree who is looking to downsize – adjustable rate mortgages can be a great deal.”
The Boston Herald has been touting the return of the ARM, citing significantly lower rates “with no teasers or negative amortization involved,” plus attractive terms as the reasons behind the recent rise in ARM mortgages.
CNN Money has also noted the trend in more savvy homeowners going for ARMs. “Behind the comeback is a simple fact: ARMs are a great bargain right now.”
The CNN article quotes Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association, as saying “the 5/1 is a great product. It’s a well understood product too; there’s not a lot of danger with it.”
Our Very Own Mortgage Experts Finance Their Homes with Adjustable Rate Mortgage Loans
At Quicken Loans, we’re very familiar with the mortgage market, and always take the time to learn about your personal finance goals so we can recommend the best mortgage product. Our years of experience give us insight into the smartest mortgage choices – and not just for our clients, but also for ourselves!
And that’s why so many team members at Quicken Loans choose the Adjustable Rate Mortgage loan for their own home financing needs. Some of the most financially savvy leaders in our company choose the ARM, including our CEO, our Chief Economist, and our Chief Marketing Officer. Why? Because the low rate makes the most financial sense to their bottom lines – lower payments, less interest.
I’ve had an ARM since 2003,” says Jay Shienbaum, Regional Vice President of Mortgage Banking at Quicken Loans. “In that time my rate has adjusted up, but it has also adjusted down. Overall, my average mortgage rate since 2003 has been 4.39%.”
Bruce Schwartz, CEO of In-House Realty, a Quicken Loans sister company, says, “I’ve had an Adjustable Rate Mortgage for the past 15 years and have saved close to $100,000 over that time from what I would have paid with a fixed loan.”
“By having an ARM, I’m guaranteed to save money now,” Bruce added. “With a fixed rate, I’m guaranteed to pay more now to insure against the POSSIBILITY that rates will be higher down the road.”
Not a bad way to look at the benefits of an Adjustable Rate Mortgage loan, which is clearly making a comeback among astute homebuyers and refinancers across the nation.