An Adjustable Rate Mortgage is Something to Consider!

The cost of borrowing money is on the rise, which isn’t the best news for home buyers looking to get a mortgage.  It seems crazy to consider a 5/1 ARM (adjustable rate mortgage) or a shorter term like 15 year fixed rate loan, but for some borrowers these have better potential rates.

What is a 5/1 ARM?

A 5/1 ARM is a 30 year mortgage that has a fixed rate for five years, and then its rate resets once a year for the remaining 25 years.  The starting rate for a 5/1 ARM generally is lower than a comparable 30-year fixed mortgage rate.  Although ARMS have gotten a bad name due to unethical lending practices leading to the most recent market crash.  There are now rules and regulations in place to protect the borrower.  Some of these are …

–          Caps on the amount the rate can rise and drop at a single adjustment

–          Lifetime limits that keep the interest rate from exceeding a certain level

–          Index which serves as a benchmark to calculate the interest rate that lenders can charge

–          Margin which is an amount added to the index to cover the lenders costs and its profit

Is an adjustable rate mortgage right for you?

Deciding whether an adjustable rate mortgage is right for you depends on the length of time you expect to keep your home and your mortgage and your tolerance for risk. I f you are in a good place in your career and can tolerate a certain level of risk, then an adjustable rate mortgage may be the right choice for you.  This type of mortgage can allow you to save hundreds or thousands of dollars.

If you are not one to take risks, then a fixed mortgage may be a better choice for you.  Either way, I am here to help.  Please give me a call today so we can discuss your options.  Our pre-approval process is easy.  I look forward to speaking with you.