Adjustable rate mortgages (ARMs) often get blamed for the U.S. housing bubble burst in 2008. But as Quicken Loans Chief Economist Bob Walters recently pointed out, ARMs weren’t the culprit. ARMs can benefit many people looking to buy or refinance a home! In case you’re unclear why an ARM may be the best mortgage solution for you, here are a few details about ARMS.
An ARM is a type of mortgage with an interest rate that varies throughout the life of the loan. The initial interest rate is normally fixed for a period of time such as five, seven or 10 years, then the rate resets periodically.
ARMs May Be Attractive To:
These folks have grown-up children who have moved out of the house, and they seek to downsize their home size and mortgage payment. The initial interest rate for an ARM is lower than that of a fixed-rate mortgage. And a lower rate can mean lower monthly payments which are attractive to some empty nesters.
These are folks whose careers come with frequent moves. If they have to consider short-term stays for career relocation, an ARM may save them money because they won’t have to worry about their affordable mortgage payment once the loan adjusts.
The Mighty Move-ups
These folks are looking to upgrade and move into a bigger home in the near future. The lower rate that comes with an ARM means lower payments, which might help them qualify for a larger loan.
These are first-time homeowners who perhaps don’t plan to live in a home for more than five to seven years. Depending on the length of time they’ll stay in their home, they may prefer an ARM that has a fixed rate for as short as one year to as long as 10 years. This makes a first-time homebuyer an ideal candidate for an ARM.
These folks are financially savvy and prefer ARMs for their initial low rates. ARMs help market savvy homebuyers take advantage of the historically low rates. Despite the prospect of the rate increasing or changing, these folks are willing to take the gamble.
Choosing between an adjustable and a fixed-rate mortgage depends on your needs. To help make this decision, decide if you’re considering a short period of time (less than 10 years) or a longer period of time. If you are purchasing a home for a short period of time, an adjustable-rate mortgage may be the right option.
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Would you consider an ARM? Let us know in the comments!
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