Benefits to an Adjustable Rate Mortgage

Although Adjustable Rate Mortgages have often been misunderstood, you might be surprised to learn there are quite a few benefits to these types of loans. In fact, it can be a great financial opportunity for the right person. It's simply a matter of asking the right questions of your lender, and determining if you can make the most of what the ARM can offer.

One of the best benefits of an Adjustable Rate Mortgage is the fact that you can get the lowest possible mortgage rates on file. With interest rates nearing record lows, an ARM loan is the one way to bring those rates even lower. In fact, these rates are often much lower than a typical 30-year fixed-rate mortgage. The market rate for an ARM today is approximately 3.875% vs. 5.125% for a 30-year FHA. However, keep in mind these rates are subject to change due to changes in the market.

Sometimes a homeowner plans only to stay in their home or mortgage for a short amount of time, or you plan on refinancing your home loan after the fixed-rate period expires (typically 3, 5 or 7 years). In this case, an ARM is the best choice. It affords the homeowner the lowest interest rate for the time they are going to own the home. Or you can use the money you save on a lower interest rate to pay towards the premium of your loan, effectively allowing you to pay off your mortgage in a shorter amount of time.

What homeowners fail to understand is that an ARM can save you money. Even excluding closing costs on a refinance, you are still saving money over at traditional mortgage. For example, if you're planning on a $200,000 home loan a 30-year fixed-rate mortgage at 4.75% is about $1,043 per month. A 5-year ARM at 3.5% is only $898 per month. This comes to a 5-year savings of $8,700. This is money in your pocket to pay towards home improvements or towards the premium of your loan.

And the most important thing to note is that ARMs do not always adjust up. Most people assume that after the fixed period expires, their rates will rise. That is not always the case. Your 5-year ARM could start at 4.25% and after that 5 year period, market prices could be much lower. This can prove to be quite a bit of savings for you!

Remember, make sure you talk to your mortgage lender to determine if an ARM is for you and know all of the facts before signing. Does your lender have prepayment penalties? What is the fixed-rate ratio? Make sure you are aware that while rates can go down - this means they also can rise as well. If you are aware of the risks, and have a firm understanding of how an ARM works, then it can prove to be a very positive experience for you!

Article Source: AddonDashboard.com Article Directory

Jordan Fylonenko is a writer with Quicken Loans who specializes in articles about FHA Streamline Refinance, Mortgage Refinance, VA Loans and other home-buying related information.

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