Most people associate an adjustable-rate mortgage, or ARM, with the market crash of 2008. In reality, ARMs were misrepresented to the public during that time and people have been slow to come back to them. However, they have a purpose. An ARM could be the perfect thing for you, depending on what your goals are as a homeowner.
If you’re going to be in a home for a set period of time, let’s say four or five years, it behooves you to look at an ARM mortgage because it could actually save you a lot of money. While ARMs are known for adjusted rates, they usually have a fixed period at the beginning of the loan. This means for a certain time, the interest rate is lower on that mortgage than it would have been on a traditional 15 or 30-year loan. After the “fixed period,” the rate will adjust up or down depending on what you agreed to on the front end. There are caps in place to protect you from large swings, however. That’s what happened to a lot of people during the recession.
Those who benefit from ARMs have a defined holding period and know exactly how long they want to own a property. You can also benefit from an ARM by rapidly paying down your loan at the beginning of the term while the rate is low. By the time the rate adjusts, your payment will have lowered, even with a higher rate.
An ARM definitely has a place in the lender’s toolbox, but there is some risk involved. If you have any questions for us about ARMs or any other type of loan, don’t hesitate to give us a call or send us an email. We would love to hear from you.