What You Need To Know About Adjustable Rate Mortgages and How They Save You Money

Introduction

The housing market is constantly changing, and the same goes for adjustable-rate mortgages (ARMs). The best way to stay informed about how ARMs affect your finances and the housing market, in general, is by educating yourself. This article will cover everything you need to know about these loans so that you can make informed decisions about whether or not they're right for you.

How to determine when an adjustable-rate loan will be right for you.

If you’re planning to stay in your home for a short period of time, such as five years or less, an adjustable-rate mortgage (ARM) might be right for you.

If you have good credit and can afford to pay higher monthly payments later, then an ARM is probably a good fit. However, while they offer more flexibility in terms of interest rates and payment amounts, ARMs do come with drawbacks. If interest rates go up, your monthly payment might increase significantly over time and cause financial hardship if the value of your home does not keep pace with rising housing costs or if other expenses increase faster than expected.

Why you might want to stay away from adjustable-rate mortgages.

Adjustable rate mortgages are not for everyone. They can be more expensive than fixed-rate mortgages and they may not be the best option if you don’t plan to refinance or sell your home before any interest rate adjustments start. For example, if you want a fixed-rate mortgage, but your lender offers only an adjustable-rate mortgage that has a lower initial interest rate than the one offered by another lender, it might make sense to go with that deal. If you understand how adjustable rates work and think that you'll know when to refinance or sell before rates increase (or decrease), then this type of loan could save you money over time.

There are two components of adjustable-rate mortgages: initial fixed period and periodic adjustments.

There are two components of adjustable-rate mortgages: initial fixed period and periodic adjustments. The initial fixed period is the length of time that your interest rate will not incur any adjustments. Most mortgages have an initial fixed period of 3 to 10 years. After this, there is a period when your interest rate may be adjusted at predetermined intervals (usually annually or bi-annually). These adjustments usually can occur every six months or annually after the initial fixed period has expired and will continue adjusting for the remaining term of the loan.

It's important to educate yourself before taking out any kind of financial loan, including a mortgage.

It's important to educate yourself before taking out any kind of financial loan, including a mortgage. If you don't feel confident in your ability to make an informed decision about the best loan available for you based on your current and future needs, then it would be wise to seek advice from an expert such as a financial planner or even just someone who has already been through the process.

It is also important that you know what kind of information you should be looking for when researching adjustable-rate mortgages so that you can find the right one for your situation. Information about interest rates and payment plans are important factors when considering whether or not this type of loan is right for you and your family (or if there are other options available).

Conclusion

Adjustable-rate mortgages are a great option for those who want to save money on their home loans, but they can also be risky if you don't know what you're doing. If you're interested in learning more about adjustable-rate mortgages and how they work, contact one of our advisors today!