Like Bob Dylan said, “The Times They Are A-Changin’”! Adjustable rate mortgages are on the rise as interest rates continue to soar. What is an adjustable rate and what does it mean for you?
Homeownership marks the start of a new chapter in your life. However, before you can move into the home of your dreams, you’ll need to decide which type of mortgage will work best for you. There’s been an uptick in the popularity of adjustable-rate mortgages as home shoppers are eager to avoid soaring interest rates and are turning to these loans in order to nab a cheaper rate. Let’s explore this type of loan and how it works so that you can decide if it’s right for you.
An adjustable-rate mortgage also called an ‘ARM’, is a home loan with an interest rate that adjusts over time based on the market. ARMs typically start with a lower interest rate than fixed-rate mortgages, this lower rate starts off fixed for a set period of time, usually anywhere from a year, three years, five years, seven years, or 10 years. ARM is a great option if your goal is to get the lowest possible mortgage rate starting out. This interest rate won’t last forever though. After the initial period, your monthly payment can fluctuate periodically, which can make it difficult for budget planning. Taking the time to understand how ARM loans work can help you be prepared in case your rate goes up.
As a home buyer, you can choose between a fixed-rate mortgage and an adjustable-rate mortgage. So, what’s the difference between the two? A fixed-rate mortgage offers more certainty because it retains the same interest rate for the life of the loan. That means your monthly mortgage payment will stay constant throughout the loan term. By contrast, an ARM may charge less interest during the introductory period, thus offering a lower initial monthly payment. But after that initial period, changing interest rates will impact your payments. If interest rates go down, ARMs can become less expensive. However, ARMs can also become more expensive if rates go up.
Have you changed your mind about which one is right for you? Do you need more information? Have questions? My team and I would love to talk to you about your options and make sure you can buy with confidence. I’ll see you here next Sunday, stay well!
