THE BENEFITS OF CHOOSING AN ADJUSTABLE RATE MORTGAGE
Every homebuyer has different mortgage needs, but that is based on his/her personal financial statements. When shopping for a mortgage loan there are lot of things you need to consider but one of the most important factors you need to consider when dealing with the loan officer is to choose between a fixed rate mortgage […]
Every homebuyer has different mortgage needs, but that is based on his/her personal financial statements.
When shopping for a mortgage loan there are lot of things you need to consider but one of the most important factors you need to consider when dealing with the loan officer is to choose between a fixed rate mortgage or adjustable rate mortgage.
So, what really is an Adjustable Rate Mortgage (ARM)? Basically, with an adjustable rate mortgage, the loan’s rate varies over time. What that means is that your monthly payments can change.
They can either increase or decrease depending on the index that is attached to the loans coupled with the fixed margin set by your lender. Some of the indices used to determine these fluctuations include;
The U.S Treasury Bill
The Constant Maturity Treasury
London Interbank Offered Rate
11 District Costs of Funds
The margin usually varies from lenders to lender and that is why it is always a good idea to always negotiate with your lenders for a suiting margin.
The Adjustable Rate Mortgage interest rate tends to offer benefits that could suit your financial plan.
That’s why I came up with this article to help you see the benefits of choosing an adjustable rate mortgage (ARM). So, read on.
The following are the benefits of choosing Adjustable Rate Mortgage
A CHANCE TO BUY A MORE EXPENSIVE AND BETTER HOUSE
The fact that ARMs tends to feature a lower introductory interest rate compared to fixed rate mortgages means your payment will also be lower, creating an opportunity for you to take advantage of the lower payments and using it to buy a larger house.
POSSIBILITY TO GET A PAYMENT REDUCTION
An ARM can also be of great benefit if you choose to make extra payments towards the principal balance of your loan. What happens when you pay extra towards the principal is that you will get a decrease in your overall loan amount. So, on your next reset date for the ARM, your monthly payment might decrease which is based on the new and low principal amount you owe.
CHOOSING ARM MORTGAGE MIGHT HELP REDUCE INTEREST RATE
If gambling on current market conditions changing and interest rates coming down is your specialty, then ARM would be the best choice for you. So when interest rates drop, there is a high possibility that your interest rate might decrease which can lead to lower monthly payments.
YOU TEND TO BENEFIT UPFRONT
An ARM is usually lower than a 30-year fixed-rate mortgage. You are bound to benefit only if you refinance or sell off the house before the initial rate on the ARM increases at the end of the fixed-rate period.
YOU HAVE MORE TO SAVE
Remember I said that you will get a payment reduction and the attractive initial interest rate which would ultimately help you save more cash than you would otherwise. You can then take what you are saving during that fixed rate period and add it to what you have in your retirement account or some other savings plan you’ve got going.
ARM COMES WITH A FLEXIBLE PAYMENTS
Adjustable Rate Mortgage (ARMs) usually comes with a flexible payment option that allows you to pay off your mortgage in time. For instance, if you find handling a full payment very difficult, you might be able to make an interest only payment. This will allow you to keep your mortgage current. You can even opt for paying more than the monthly payment, reducing the principal of your loan.
PAYMENTS ARE USUALLY CAPPED
Though Adjustable Rate Mortgage(ARMs) may have several types of caps, these caps limit the increase on your mortgage rate and the size of your payment. It includes interest rate caps and caps how much the payment can grow each time the rates adjust it.
The benefit of choosing Adjustable Rate Mortgage cannot be stressed enough because talking more about other benefits may take us away from the context planned for the article. Adjustable Rate Mortgage is the perfect option you can always opt for.