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12 Days Winner: Robert KiyosakiADJUSTABLE RATE MORTGAGES
Current Rates, News & Information
If you’re thinking about buying a home, you’re probably also thinking about mortgages and which kind of home loan would suit you best. One popular mortgage loan option is the adjustable-rate mortgage, also known as the ARM. Adjustable rate mortgages are made up of several components, which can vary from lender to lender, but one of these major components is the adjustment period. The adjustment period refers to the time when an ARM’s interest rate changes from a fixed rate to one that reflects the market to which it’s tied.
Why the ARM Adjustment Period Matters 
The adjustable rate mortgage, more commonly referred to as an ARM, is one of the most popular kinds of mortgages available in the United States. That’s because the initial interest rate is much lower than most other home loans for a set period of time. After this initial discount during the introductory period, the rate resets, or adjusts. Home buyers who take out an ARM get the benefit of lowered monthly payments when index rates fall.
When that happens, borrowers of adjustable rate mortgages could potentially save money on their monthly payments. However, the downside to an ARM is that when interest rates rise, so do the monthly mortgage payments. Luckily, people who have an ARM loan are protected by mortgage interest rate caps that limit how high the interest rate can go once the introductory fixed rate period is over.
Back in the real estate “boom” days, using an adjustable rate mortgage seemed like a clever idea. Home buyers looking for the lowest interest rates possible, and even those who planned on only owning their home until the ARM rate readjusted, were all willing and eager to sign on the dotted line.
Fast forward to 2008, when the the foreclosure rate skyrocketed to 75 percent and the hot real estate market came to a screeching halt. Many homeowners found themselves unable to handle their ARM mortgages. Part of this catastrophe was fed by the jumps in interest rates during the readjustment periods of adjustable rate mortgages.
As one of the most common types of mortgages, there are a few key advantages to obtaining an adjustable rate mortgage (ARM). ARM loans provide borrowers enticing introductory rates that are typically lower than traditional 30 year fixed rate mortgages. Over a set amount of time, the ARM will reset, meaning the mortgage rate will adjust to reflect the current market average. If you time the arrangement correctly, your mortgage rate may become substantially lower than the initial terms you agreed to.
ARM Loan Rates Can Be the Lowest
The most important thing to know when using an adjustable rate mortgage to finance a new home purchase is that the interest rate is not going to stay the same for the life of the loan. The current ARM initial interest rate will change after a certain period of time, which could result in a higher monthly payment and more expensive loan.
Advantages of the ARM Initial Interest Rate
One kind of home loan many buyers find attractive when financing their purchase is the adjustable rate mortgage, which provides a lower initial interest rate for a certain amount of time before it is readjusted. However, an ARM buydown could make the deal even better.
How an ARM Buydown Works
Current economic conditions have created the perfect opportunity for home shoppers in decades. Anyone who can actually afford to buy a home right now can not only find exactly what they want at bargain-basement prices, but also finance their new home purchase with record low mortgage rates.
Traditional fixed rate mortgage loans currently offer floor-level interest rates, but anyone strapped for cash may be particularly impressed by the introductory rates that come courtesy of adjustable rate mortgages. However, just because an ARM interest rate appears attractive during the first few years does not mean this type of loan will continue to be an affordable option. Before committing to an ARM loan, it is important to understand the full breadth of adjustable rate mortgages and how getting one may set you up for a longer term than you initially anticipated.
When shopping around for a home loan, many borrowers are torn when choosing between the two most popular loan options: Fixed rate and adjustable rate mortgages. Both offer unique advantages, as well as potential drawbacks. However, a particular type of adjustable rate mortgage may solve this dilemma and allow borrowers to reap the rewards of both types of mortgages at once. It is known as a hybrid ARM because it offers a combination of fixed and adjustable rate features.
How Hybrid ARMs Work
Though an adjustable rate mortgage can backfire on a borrower when mortgage rates are rising, knowing when the appropriate time to obtain this type of loan is will help you decide if an ARM is your best home loan option. There are certain situations when an adjustable rate mortgage makes the most sense as your choice for home financing.
When Your ARM Is a Short-Term Loan
The decision to buy a home is a huge one and finding a mortgage loan that will make this process easy and affordable is an imperative step. If you’ve determined that now is the best time to take on an adjustable rate mortgage, you may be able to creatively finance your way into snagging your dream home and making it yours.