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Adjustable
Rate Mortgages
The mortgage
meltdown has been hard on
ARM's, adjustable
rate mortgages,
yet they serve a good purpose for borrowers looking to purchase homes
or to refinance them.
Adjustable
Rate Mortgages Have Their Benefits
Like most other
things, when used
correctly, adjustable
rate
mortgages can benefit homeowners.
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Adjustable
rate mortgages help lower borrower's
payments.
ARM's are usually interest only mortgages. An interest only payment
on a $450,000 5 year adjustable
rate mortgage at today's rate of 6.125% interest = $2,297
per
month whereas the principle and interest payment is $2,734 per
month. This allows borrowers to afford a home loan they may not be
able to afford without the interest only option.
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Your
new mortgage is a short
term versus a long term plan. With the interest only option,
why
not reduce your payments if your housing goal is to stay in the
home, or mortgage, for two to five years?
How should you
structure your
adjustable
rate mortgage?
-
The
shorter the adjustment
period the lower the interest rate. However, you need to be
sure
that your mortgage will not adjust before you can handle the new
monthly payment.
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Do
not chose an adjustable
rate mortgage if you have little or no
equity in your
home. Again, you need a contingency plan if you chose an
adjustable
rate mortgage.
If you need to refinance out of an ARM you will need home equity to
do so.
The best advice
is to talk to a
lender before embarking on an adjustable
rate mortgage loan.
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