Understanding Loan Terms

Why An Adjustable Rate Mortgage Might Be Right For You

25 July 2018

Stanley Simmons

If you are buying a house and plan to sell it within five to seven years, you may want to consider getting an adjustable rate mortgage (ARM). This type of mortgage has an interest rate that changes, but you will be locked in for a set amount of time. Here are several things you should understand about ARMs.

They often offer the lowest rates.

One thing people care about a lot when shopping for a mortgage is the interest rate on the mortgage, as the interest rate controls the payment amount and the amount of the total loan when paid in full.

If you care about the interest rate and want the lowest rate possible, you should consider looking at mortgages with adjustable rates. Lenders often offer the lowest interest rates on these types of mortgages, and that is the main reason people will choose these instead of loans with fixed rates.

They have risks.

In exchange for offering the lowest rates, in most cases, ARMs have risks. The main risk is that the interest rate could go up. In fact, the interest rate could skyrocket if something occurs in the economy that causes interest rates to rise.

With an ARM, you will have a locked rate only for a certain length of time. This timeframe might be three years, five years, or seven years.

If you are planning on selling your house in the near future, you should try to choose a mortgage loan that offers a locked interest rate for the number of years you plan on staying there. For example, if you want to sell this house in seven years, look for an ARM with a 7-year locked rate.

They are good for short-term homeowners.

If you plan on living in a house only for a short while, an ARM is a great option, primarily because you do not have a lot of risks if you plan on selling before the rate changes. If you planned on staying in the house for 20 or 30 years, on the other hand, getting an ARM is not always the best option.

However, there is always a chance that the interest rate on your loan will drop when the time comes. Before you choose any type of loan, you should carefully consider the loan, its terms, and the effects it may have on your future.

To apply for a mortgage loan, contact a lender today to inquire about the current mortgage rates in your area.

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About Me

When was the last time you realized you were in the red financially? Although most people don't think about their finances on a day to day basis, it can be easy to find yourself living paycheck to paycheck if you aren't careful. I began thinking carefully about the financial implications of some life decisions I was making, and I knew I had to make a difference. I talked with a loan officer about getting things together, and he was instrumental in helping me to work things out. Read more about my financial successes and failures on this little website. You might be able to avoid some of my previous mistakes.