Comparing all your mortgage options can seem overwhelming, especially when you consider the rates and what’s best for you and your family. You may be hearing about adjustable rate mortgages (ARMs) and are wondering what they are and how they could help you. Read on to find out how they compare to a traditional fixed-rate mortgage and what you should consider when looking for the right mortgage.
An adjustable rate mortgage (ARM) is a type of loan in which the interest rate is periodically adjusted, usually on a yearly basis. This means that the rate you pay on your loan can change over time, based on market conditions. The initial interest rate on an ARM is usually lower than a traditional fixed-rate mortgage, but could potentially increase over time.
If you’re looking for a mortgage with a lower initial rate, an ARM may be an option for you. It’s important to consider the potential for your rate to increase over time, as this could significantly affect your monthly payments. Be sure to read the terms and conditions of the ARM carefully to understand how the rate could change and what your options are if you’re unable to make the payments. It’s also important to consider the length of time you plan to stay in your home, as an ARM may not be the best option for those who plan to stay in the same home for a long period of time.
What is an ARM?
Before we can talk about the main differences, we need to know what an ARM is. An ARM is a mortgage that has an interest rate that adjusts over time based on the market. ARMs will start with a lower interest rate, however, after an initial time frame, the rate will start to change. When your rate starts to adjust is determined by the type of ARM you get. For example, a 7/6 ARM will have a fixed interest rate for the first 7 years; thereafter, the rate can adjust every six months. Adjustable rate mortgages have set intervals to prevent the rate from adjusting all at once and limits for the highest possible rate. * Arbor Financial offers 3/6, 5/6 and 7/6 weapons.
What is the difference between an adjustable rate mortgage and a fixed rate mortgage?
The main difference between an ARM and a fixed rate mortgage is the rate adjustment. A fixed rate mortgage will have the same installment for the entire duration of the loan compared to the ARM, which will adjust after a certain period of time. Having a flat rate can help long-term budget homeowners. An ARM also starts at a lower rate than traditional mortgages; this can be useful if you are looking to pay off the principal more quickly. If rates go down, an ARM can help you take advantage of lower rates without having to refinance.
Questions you may want to ask when considering an ARM:
- How long do you plan to live in your home?
- How often will your rate change and how long will your initial rate last?
- Can you still comfortably afford the loan limit payments?
- Is a lower initial payment or a long-term fixed payment more important to you?
Finding out which option is best for you can be a stressful experience. Our experienced and friendly mortgage experts can ease your mortgage pressure and help you find the best option for you. Talk to a mortgage specialist!
* Subject to underwriting and credit approval. Other restrictions may apply. Not all candidates will qualify. Programs, rates, terms and conditions are subject to change without notice.
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