If you want to significantly lower the average cost of your mortgage or if you plan to relocate or raise money from refinancing within the next 10 years or if you’re looking for the lowest interest rates available, then an adjustable rate mortgage is just what you need!
Adjustable Rate Mortgages (ARMs) allow you to save thousands of dollars in the initial fixed rate period, as compared to the traditional fixed-rate mortgages.
If you anticipate a substantial increase in your property value over the next few years or if you plan to move out of your home shortly, then an ARM can help you reduce your mortgage payments.
ARMs carry interest rates that vary at fixed intervals, as decided at the time of application. Apart from private lending, there are several Federally-insured ARMs also offered. Here’s what you need to know about Adjustable Rate Mortgages:
Benefits of ARMs
As the name itself applies, ARMs offer flexibility over fixed period mortgages and loans. They save thousands of dollars in payments. The reduction in monthly payments leads to an increase in your savings, which you can use to pay off other debts or use in any other way you like.
Another major benefit comes in the form of refinancing. When you apply for a new loan to raise money for structural improvements in your home, adjustable interest rates come in handy.
If you intend to live in your home for a short period of time and then make all necessary repairs to score a good deal on flipping, ARMs can lower your mortgage payments, leaving you with more money to reinvest in your home.
Lastly, ARMs carry little down payment. A typical ARM deal requires you to put in as little as 5% (or 3% in case of an FHA). This means that you can easily refinance up to 95% of your home’s value, by means of ARM.
Hybrid Rates - 3/1, 5/1, 7/1, 10/1 ARM Loans
Nowadays, Hybrid ARMs are making headlines as one of the most popular and sought after mortgages by homeowners across the U.S. Such mortgages carry a fixed initial rate which can then be converted into an adjustable rate for the remaining portion of the loan.
These mortgages are often denoted as 3/1, 5/1, 7/1 or 10/1. The first number on such loans indicates the time (in years) up to which the loan is fixed. The second number indicates the number of times the rate can be adjusted after the first change.
ARM Interest Rate and Payment Caps
As soon as the fixed-rate period on such mortgages end, the loan enters an adjustable-rate period. Interest rate caps are then implemented.
These caps denote the maximum amount the rate can increase, both at the end of the adjustment period(s) and over the life of the entire loan, as a whole.
Questions about ARMs and the benefits vs. fixed-term loans, call us today! 720-204-4006
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