Adjustable Rate Mortgage
An adjustable rate mortgage (ARM) offers lower initial interest rates that will adjust over the life of the loan based on the current housing market. It’s important to understand both the benefits and risks when considering this type of loan.
What Is An Adjustable Rate Mortgage?
One of the primary differences between a fixed rate mortgage and an adjustable rate mortgage is that interest rates for an ARM change periodically, usually in relation to an index, and your monthly payment may increase or decrease accordingly.
As you consider loan options, Money Street Mortgage will help you understand and evaluate the details involved in calculating your loan. Don’t worry if the process sounds intimidating. We’ll walk you through the process step by step and help you choose the loan that meets your needs.
Benefits and Risks
Because adjustable-rate mortgage interest rates and payments will change over the life of the loan, it’s important to understand both the benefits and risks before you apply.
Benefits of the Adjustable Rate Mortgage:
- Usually offers lower initial interest rates than FRMs
- Lower monthly payment for the initial loan period
- May be less expensive over a long period if interest rates remain steady or drop
Risks of the Adjustable Rate Mortgage:
- Potential for increased interest rates
- Potential for higher monthly payments
Remember that an ARM is essentially a trade-off: you get lower initial interest rates in exchange for assuming greater risk over the long term.
Questions to Consider
Before choosing an ARM, ask yourself these questions:
- Is my income enough—or likely to rise enough—to cover higher mortgage payments if interest rates go up?
- Will I be taking on other sizable debts such as car loans or student loans in the near future?
- How long will I own this house? (If you don’t plan to be in the house long, you may not be concerned about rising interest rates.)
- Do I plan to make extra payments or pay the loan off early?
- If your monthly mortgage rate rises, will you be able to afford those payments in the future?
Ready to Buy?
Our lending agents will help you consider these questions carefully in order to determine whether an adjustable rate mortgage is the right choice for you. Call Money Street Mortgage today to talk with a home mortgage expert about buying a home in Clearwater, Orlando, or Miami.