ADJUSTABLE RATE MORTGAGES

Whether you’re looking to finance a car or home purchase, right now is an excellent time to take on a loan if you’ve been considering doing so. Interest rates remain lower than average and obtaining a low rate means paying less interest over the life of your loan.

Of course, some lenders have better rates than others. Take 1st Advantage Federal Credit Union–they are currently offering an auto loan rate special of 3.49% APR as well as the lowest mortgage loan rates in history! If you want to make buying your next car or home as affordable as possible, secure a loan from 1st Advantage while these rates last.

According to a new prediction from Freddie Mac, the number of homeowners with adjustable-rate mortgages (ARMs) is on the rise. According to the report, ARMs currently make up approximately 5 percent of all mortgages issued, a number that could jump to 10 percent by the end of the year.

ARMs Return After Near Elimination

Adjustable rate mortgages are a very popular type of mortgage loan, rivaled only by the fixed rate mortgage. Many borrowers choose an ARM because of the favorable introductory interest rates they offer. However, many home owners also choose to have their loan backed by the Federal Housing Administration, which makes the terms of the mortgage much easier to handle. If you are considering an ARM but would like an FHA loan, don’t worry, you can have both.

How an FHA Adjustable Rate Mortgage Works

The Federal Housing Administration (FHA) runs several programs to promote home ownership, including providing potential homeowners with opportunities to secure an FHA loan. An FHA loan is a mortgage insured against default by the Federal Housing Administration. The FHA backs the loan so a lender won’t have to write off the loss if the borrower defaults–the FHA will pay.

Qualifications for an FHA Loan

Home buyers looking to lower their total cost of financing can often explore more sophisticated options available in their mortgage loans. One example is purchasing initial mortgage rate discounts by paying down points on the loan. When used in conjunction with an adjustable rate mortgage, an ARM initial discount could result in a significantly low-interest introductory period.

How Buying Initial Discounts Works

The name says it all when it comes to adjustable rate mortgages (ARM). Those who opt into an “ARM” should realize that after the initial period of low interest rates, the mortgage rate will reset. Your new rate will be based on a combination of a market index and a margin based on the state of the economy that change – which may or may not work in your favor.

Many people choose an adjustable rate mortgage as the initial monthly payments and interest rates may be lower than what borrowers would have to pay for a traditional fixed rate home mortgage value of the same size. The reason ARMs have lower initial interest rates is that the borrower, not the bank, is assuming the risk that the adjustment rates will change unfavorably for the lender. If during the terms of your ARM, the rates are lowered you will benefit from having to pay less, and the bank will earn less money for loaning you the money. If the rates go up, you also assume that risk.

Adjustable-rate mortgages are a popular form of home loan that links the interest rate of your loan to a particular index. ARM loans are popular among home buyers because they provide a lower initial interest rate and make homes more affordable during the introductory period. After a predetermined period of time, the initial rate resets to follow the index it’s tied with.

How the Index Affects Your Interest Rate

When you’re ready to buy a home and need to take out a loan to help with the large purchase, there’s a lot to consider beyond just finding the best mortgage rates. You also have to figure out which type of home loan will best suit your needs. Among the many kinds of mortgages are one of the most popular options–adjustable rate mortgages. While ARM loans offer plenty of advantages, they are not without serious potential drawbacks, which is why you should thoroughly consider all your options before obtaining one.

Risk of an Adjustable Rate Mortgage

When it comes to financing a home purchase, sometimes flexibility in payment options is just as important as low mortgage rates. Fixed rate and adjustable rate mortgages are certainly not your only options when it comes to home loans, so investigating some different types could help you find a way to make home ownership more affordable. Take interest only mortgages and pay option mortgages–see how these two types of home loans could be your best bet.

Interest-Only Mortgages

If you have an adjustable-rate mortgage loan, the option to make prepayments to the principal should be available to you. While most borrowers are allowed to make ARM loan prepayments, some loans do charge a penalty for early payments.

The Purpose of Making ARM Prepayments

The reason for making prepayments on an ARM is to lower the cost of the interest charged. The benefit lies in that once the mortgage rate resets, possibly to a higher one, the borrower will still get a lower monthly payment because there is a smaller principal balance. By paying down the principal fast, you’re also reducing the amount of debt you have sooner.