When you think of an adjustable rate mortgage (ARM), does the word “risky” come to mind? Past news stories have given borrowers that perception. However, ARM loans have become more popular in recent years, depending on the borrower’s situation.

 

Sure, a 30-year fixed rate mortgage can be a great option if you’re going to stay in your home. But, nowadays, most people either move or refinance their home every 5 to 7 years. If this sounds like your situation, why would you choose to pay more with a fixed rate mortgage than you would with an ARM?

 

Check out this video from Grandview Lending which outlines some of the benefits you can receive by choosing an ARM loan.

 

 

Let’s talk about some of benefits of an ARM loan in more detail.

 

1. Lower Monthly Payment

Interest rates for ARMs are typically lower than fixed rate mortgages. So, you’ll have a lower monthly payment with an ARM compared to a 30-year fixed mortgage. Therefore, if you’re on a tight budget, but you expect to make more money in the future, an ARM can be a great option for you. Plus, you can save money each month compared to a fixed loan.

 

2. Initial Fixed Rate

Today’s ARMs have an initial fixed interest rate for a certain time period – generally, 5 or 7 years. For example, a 5/1 ARM has an initial fixed rate that’s good for 5 years, at which time it adjusts based on market conditions. Additionally, today’s ARMs come with sensible maximum caps of how much you could pay as the ARM adjusts.

Therefore, do you only plan to live in your home for 5 years? Or, do you think you’ll refinance once the 5 years on your ARM are up? If so, there is no reason why you should take out a 30-year fixed mortgage. Take advantage of the cheaper interest rates and pay less each month.

 

3. Lower Adjustable Rates

Following the ARM’s fixed rate period, your interest rate can adjust up or down, depending on current market conditions. Therefore, if it goes down, you’ll have a lower payment than you did during the fixed rate period. And, because of the maximum caps, you don’t have worry about your rate spiraling out of control.

 

Do Any of these Circumstances Sound Like Yours?

 

If any of the following situations sound like your circumstances, you may benefit from an ARM:

– You plan to move before your ARM would adjust.

– You’re a first-time home buyer who only plans to stay in your starter home for 5 years.

– You plan to relocate within 5 years because of your job.

– You plan to retire in 5 years. At that point, you’ll either move, refinance, or pay off your mortgage.

– You expect to make a higher income in 5 years, which will accommodate a fluctuation in your monthly payments.

– You’re a financially responsible person who can plan for future and handle higher monthly payments if your ARM rate increases.

 

Talk to the experienced mortgage brokers at Grandview Lending at 317.255.0062 to determine if an ARM loan is the right mortgage solution for your situation. We can help you look at your short- and long-term financial goals to see if an ARM is a feasible option. Plus, we can review and compare the terms of an ARM and a fixed-rate mortgage to see which fits best with your lifestyle. Contact us today.

 

Photo credit: 123RF / Natalia Merzlyakova