| Know Your Mortgage Options, Comparing An Adjustable Rate Mortgage To A Fixed Rate Home Loan |
| Articles - Mortgage |
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Over the past year, there has been a lot of information about Adjustable Rate Mortgages (ARMs). Many publications and news outlets have said that ARM loans are the reason for the mortgage crisis that started in 2008. Many also state that ARM loans are the reason for the high foreclosure rate.
Over the past year, there has been a lot of information about Adjustable Rate Mortgages (ARMs). Many publications and news outlets have said that adjustable rate loans are the reason for the mortgage crisis that started in 2008. Many also state that ARM mortgages are the reason for the high foreclosure rate. Though some of the information is true, ARM loans have received a lot of bad press. Yes, ARM loans are not for every homeowner and you should only consider an ARM loan as long as you know the terms of the loan. Below are some reasons why one should even consider an ARM loan. First off, you must ask yourself how long you plan on owning the mortgage or keeping the home. The average home owner stays in their house about 5-7 years before they sell or refinance their house. The average American only keeps their mortgage loan for about 5 years as well. Since several people only keep their home loan for a short period of time, that was the basic design on an ARM loan program. The ARM loan gives you a lower rate than a FIXED rate loan for a period of time. Once the lock period ends, then the rate can adjust. Keep in mind that how long you plan on keeping your loan or house can play an important part in your decision to go with an ARM or a Fixed rate loan. For example, if you plan on staying in your home for 5 years and the current FIXED rate is 5% while an ARM rate is 4.5%, then by going with a 5 year ARM could save you thousands during that time. A FIXED rate loan is a great option for homeowners that plan to keep their home for a longer period of time. If you are uncertain of how long you plan on keeping your house, then a FIXED rate mortgage would give you the peace of mind of knowing your rate and monthly loan payment would not change. ARM loans are a great option if you understand the loan term itself and are used for the right reasons. Some people that have ARM loans now have actually seen their interest rate drop. The terms of how the rate changes will be in the loan note. Each ARM mortgage is different, so it is crucial to understand how the rate is calculated once the mortgage goes into the adjustment period. Here is a reasons to never consider an ARM loan. If the only way you can qualify for the mortgage is to go with an ARM loan, this is a terrible reason to do an ARM loan because once the loan adjust, you might not be able to make the new monthly mortgage payment. For the most part, what got home owners into problems with the ARM loans is that they did not understand how their monthly payment would be affected once the loan went into the adjustment period. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. David White is a Senior Mortgage Officer who specializes in home loans. He has over 12 years experience helping his clients with Southlake home loans |