Often, mortgage borrowers want to avoid Adjustable Rate Mortgages (ARMs) at all cost. Most fail to realize how an ARM loan may actually benefit them over a traditional 15 or 30 year fixed loan.
The ARM will offer you a lower rate and if you only plan to live in the home 3-7 years then an ARM will benefit you with its lower payments.
An ARM loan can help save you money from your monthly mortgage payment. This money saved can be used to pay down other debts, apply more money towards the principal of your loan, and to start investing money towards your retirement. There are all kinds of ARM loans available. Some common examples are 3/1 ARMs, 5/1 ARMs, 7/1 ARMs, 3/1 Interest Only ARMs, 5/1 Interest Only ARMs, and Pay Option ARM's. All of these have their own benefits and your mortgage broker should be able to help decide which one might be right for your unique situation.
Many times the 2/28 ARM or the 3/27 ARMs are the only way a person with low credit scores can purchase a home. They are basically used as starter loans to get you in the house. Once you are in the house, then it may be beneficial to you to refinance into something more long term, if you plan on being there for a while.
Arm loans can be beneficial to you for lowering your monthly payment over a shorter period of time allowing you to purchase or refinance a property and limit your monthly expenses. If you are anticipating a higher income at a later date, an arm loan may be your best option for minimizing your expense while maximising your buying power at your current income level.
Your mortgage broker should give you options for fixed rates or arms. Many sub prime borrowers benefit from the arm rates due to lower payments while they restore and rebuilt their credit rating.
An often overlooked benefit of an ARM loan is that it could possibly save you from the need to refinance. Here's what I mean. In the period from 2001 to 2004 when rates were declining, many borrowers with fixed rates spent thousands of dollars to refinance their loans, sometimes more than once. They did this in order to keep ratcheting their interest rate down, again incurring thousands or even tens of thousands in refinancing costs in the process. Those with ARMs saw their interest rates go down along with the decrease in market rates - without having to pay to refinance! So yes, with an ARM you are vunerable to increased rates when the market rises but you also benefit with lowered rates when the market moves downward.
Many investors choose adjustable rate mortgages. The lower initial interest rate period will often provide enough time for a house to be rennovated and resold.
Many borrowers who choose ARM loans do so for the low teaser or start rate offered during the initial fixed period of the loan. ARM mortgages are generally refinanced before the end of this period because when the fixed period on an ARM expires, the rate and payment of the adjustable rate mortgage can rise dramatically.
Choosing between a fixed rate loan and aa adjustable rate loan is one of the most perplexing choices anyone can make. With a fixed rate loan, you know exactly where you stand today, and where you’ll stand any number of years from today. The fixed rate is easy to understand, and it holds no surprises for you. The adjustable rate loan may look more attractive because it will generally have a lower starting interest rate. And, of course, there’s always the hope that interest rates may go down. In deed, in recent years, the have gone down.
An Adjustable Rate Mortgage (ARM) loan can benefit you in that your payments are lower during the initial period. This can help you afford a larger or more expensive home and provide cash flow for other financial needs.
If you are just finishing college or are otherwise starting out in your career, an Adjustable Rate Mortgage, or ARM, may be just the loan for you. The initial payments will be lower, and if you still have the loan by the time it does adjust you will likely be earning more since at that point you'll have several years experience behind you.