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Adjustable Rate Mortgage (ARM)

An adjustable rate mortgage is a program that is great for some people, but doesn't really work for others.  If you are an individual who would like to purchase a home and you have investments and assets that back up your financial position, you may find that an ARM or adjustable rate mortgage is the perfect vehicle for you.  Understanding more about how they work will help you decide if this is the right type mortgage for you. 

 

Although all mortgage interest rates are very low right now, the rate on adjustable rate mortgages is much lower than for fixed rate mortgages.  This makes them a very attractive option for many people.  However, if the rates go up, you may find that when this mortgage adjusts your rates could be much higher than if you had started out with a fixed rate mortgage. 

 

When you get an adjustable rate mortgage, you will find that they have different terms as far as how long the low rate will be in place before it adjusts as well as the length of the entire term of the mortgage.  You can get an ARM that goes for 15, 20, or even 30 years, and you can also get ones that adjust at 3, 5, or even 10 years.  If you are opting for mortgage refinancing with an ARM, you will be able to extend the new loan over the life of the loan, which may greatly help to reduce your payments.  It is a good idea to find out how often the rate will adjust, because some ARMs will adjust monthly as the indices such as the prime rate fluctuate. 

 

For the average person, having a set monthly payment that will remain the same for the duration of the loan provides a measure of security that an ARM does not provide.  However, if you are planning to sell your home in a couple of years, it could be a great idea.  You would be able to have extremely low payments for the time that you own the home, and then the loan would be paid off when you sell it.  This type of loan may be an option for a bad credit mortgage, but you must be careful to understand the terms.  Whether you are looking for a mortgage refinance or a new home, if you are planning to stay in the home for more than five years, an adjustable rate mortgage may not be for you.  However, if you are an investment savvy person who is looking for a low rate and a quick change, it may be perfect.