Mortgage Option series - Adjustable Rate Mortgage Option, ARM

Feb
14

The second loan in the top 5 most popular mortgage option series deals with Adjustable Rate Mortgage, ARM, loans. These are quite interesting when you pick them apart. We have already looked at fixed rate mortgages so now, let’s take a look at the adjustable rate mortgage option, or ARM.

The initial payments on an ARM loan are usually lower than a fixed mortgage due to the fact that the rate on an ARM loan is lower to begin with. Thus your payments will be lower for the first part of the loan than if you choose a fixed rate.

The catch with an ARM loan is that your payments go up eventually. Depending on the terms of your loan, your rate can go up as much as 2% at a time. There will be some kind of cap, usually, as to how much it can go up each time and when it goes up. Usually it will go up once a year, but can go up more often depending on the terms of the loan.

The advantage of this type of loan is that you can get a larger loan for a smaller payment in the beginning. Be very careful, however, with this line of thinking. You need to make sure that your income will be able to handle the increased payment load in the future.

Another advantage to an ARM loan is your length of stay. If you are planning to stay in that house a few years and then move, then this is a great way to keep a lower payment and still get what you want out of the house. You will accumulate equity with this type of loan because you are paying on the principle as well as the interest. So when you go to sell, you will be in good shape if you sell in the first few years of an ARM loan.

It really boils down to what you want your house to do for you as an investment and how much you can spend each month. Just be wise with your choices. Never spend more than you can guarantee to pay back. Otherwise you are setting yourself up for a foreclosure situation. Next week we will look at interest only loans. Hope to see you then.

Don’t forget to stop by Best Rate Mortgage House and let us show you which mortgage option will work for you. It’s the best place in Broward County to get a mortgage.

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