Is an Adjustable Rate Mortgage right for you?
If you’re in the market for a new or new to you home, then you have probably already started thinking about a mortgage. Unless you have loads of cash just sitting somewhere, you are most likely going to put a down payment on a house and then borrow the rest of the money for the purchase.
This is a big investment and worth considering all options, including ARMs, or Adjustable Rate Mortgages.
Adjustable rate mortgages, as opposed to fixed rate mortgages, offer a sliding (adjustable) interest rate adjusted over the life of the mortgage. This usually means that the interest rate starts lower at the beginning of the mortgage term and increases over time. Although many opt for a fixed rate mortgage, there are distinct advantages to an ARM that are worth considering before making a decision on which type of mortgage you will use.
Here are just a few of the advantages of an adjustable rate mortgage;
1. Lower mortgage payments in the first five years.
For many families, there is a likelihood of earning more in their job over time. An adjustable rate mortgage accounts for that reality and starts your interest at a lower rate while you build your earning potential. By offering a lower interest rate to start, you can afford to borrow more for the home you love while gaining traction in your career.
2. Save money if you plan on selling within 5-7 years.
The average homeowner only owns their home for 7 years before selling it. If you have a fixed rate mortgage, there is no rate advantage to selling it early. If anything, you will likely pay down less principle and build less equity within that time frame. An adjustable rate mortgage not only saves you money on interest, but gives you the opportunity to build more equity by having room in your budget to pay down the principal faster.
3. They are easier to qualify for
Not only do you get the advantage of starting with lower monthly payments, ARMs are easier to qualify for. This can be helpful for those with less credit history and just starting out on their financial journey.
If you’re still not sure if an adjustable rate mortgage is right for you, talk with one of our mortgage professionals. We’d love to help you find the right mortgage for your needs.
