For the right type of buyer and right situation, an ARM mortgage can be a useful type of loan to get. It offers buyers a lower fixed rate, but only for a limited amount of time. Eventually, the loan becomes variable, rising and falling with the market.
• ARM mortgages are conventionally known as Adjustable Rate Mortgages
• They offer a low fixed rate for a given period of time
• After the fixed period, the interest rate adjusts every year for the life of the loan
• Buyers who expect to move in the near future or expect significant increases in salary may be good candidates for an ARM mortgage
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Ja: An ARM mortgage is an adjustable rate mortgage, and what that means is that an interest rate will be fixed for a period of time, usually you can choose anywhere from one year, to three, to five, or seven years. And then the interest rate adjusts every year – after during the life of the loan depending on market conditions. It does give you a lower interest rate option on that mortgage.
Greg: ARM mortgages, for the right person, are a great loan. Someone that maybe knows they’re gonna be moving, maybe in the next three to four to five years, that’s a lot less interest that you’re gonna pay over that five year period.
Ja: Let’s say for example that you don’t have any kids right now. But you know that in the next couple of years you want to start having some children of your own and you need a larger house so you know that in five years you’re gonna be out of that house. Or if you are recently a graduate of college, and know that you are going to receive several increases in your income over the next couple of years, then again an adjustable rate mortgage gives you that option of a lower interest rate.
Greg: They know that their job is gonna be transferring them, why would you want to lock rate over thirty year’s term when you could lock it over maybe a five or a seven year term and get a much lower interest rate on that money.
Ja: With every adjustable rate mortgage there is a cap to how high that rate can adjust during the adjustment period, as well as a cap as to how low that rate can adjust during the adjustment period as well. So when those three or five years are up of your fixed period, the interest rate does adjust according to the market conditions. And there aren’t any assurances as to what’s going to happen with the interest rates ten, twenty years from now.
Greg: After it goes into the adjustable phase, if you were happening to stay in the home, all you would have to do at that point is look into refinancing options. It’s not going to balloon or come due or anything scary like that, but yeah, if you tend to move around a lot, you know, there’s a need there, ARM loans are a great product.