Adjustable Rate Mortgage Options
All of us like to have a range of options to choose from, particularly when we are making a major purchase. You wouldn't buy the first car you see on the car lot, and you wouldn't buy the first house you see with a For Sale sign in front. Similarly, you should not jump on the first kind of mortgage your lender offers without first examining the various options that are available.
There are a number of adjustable rate mortgage options that may be of interest to you depending on your situation. Because the interest rate on an ARM changes over the life of the loan, it can enable you to qualify for a mortgage when you would not have qualified for a fixed-rate mortgage. Thus an ARM may be a good choice for a first-time homebuyer who does not have a large down payment saved up or whose income is on the borderline because they are still relatively low on their career ladder.
An ARM may also be good if you know that you will not be owning the house for very long, but you want to have the advantage of building equity in a home instead of just shelling out rent money for the privilege of occupying a dwelling. A number of ARM options will give you a low initial rate for the first several years. However, be aware that if you do not sell the house before the initial rate expires and the interest rate resets, your house payment will suddenly jump dramatically. If your circumstances have changed and you will end up occupying the home long-term, you may need to see if you can refinance to a fixed-rate mortgage at a lower interest rate so you don't end up paying those high interest rates for years to come.
There are also options that will allow you to pay interest only for the first few years of the loan. If you are buying a home you want to live in for any length of time, these are a very bad option because you are not building any equity in your home, and when the loan resets to repay principal as well as interest, you will be in for a big financial surprise. However, if you are buying undervalued houses and renovating them to sell for a profit, an interest-only loan may be the best way to get financing for your resale business.
Adjustable rate mortgages offer a wide variety of repayment options. You will want to talk with your lender and real estate agent to determine what will be the best option for your particular set of circumstances.
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