the last year because people tend to associate adjustable rate mortgages with recent housing woes plaguing the nation but the loans are not the cause of the nation’s real estate crisis; misunderstanding and misusing them is. The reality is that adjustable rate mortgages can, in fact, be an excellent mortgage loan option IF you fully understand how they work. So, with that said, it’s time to learn.
Who is eligible for an adjustable rate loan? As with any mortgage loan, anyone can apply. However, adjustable rate loans do tend to be more appealing to those who deal with budgeting changes well and those who don’t plan on living in a specific house for more than three to five years. Why? Keep reading…
What exactly is an adjustable rate? An ARM is one of the two most popular mortgage loan types offered in the United States. As the name suggests, the mortgage loans are called adjustable because the rate of the mortgage loan changes periodically-most commonly every six months. Mortgage loan firms often abbreviate “adjustable rate mortgage” with “ARM.”
How do ARM’s work? The process for obtaining an ARM is the same as any other loan type. You must apply for a mortgage loan and then, based on your credit standing, a mortgage loan officer will process your information to determine which lenders are willing to fund your mortgage. In most cases, loan officers will present you with multiple home loan options-ARM and fixed-rate mortgages.
Why do people choose the adjustable rate loan type? The simple answer: The numbers associated with ARMS always look great! In fact, they’re nearly too good to be true…but they are true. The interest rates are low and the monthly mortgage payments are manageable for a much larger percentage of the population than fixed rate loans.
When is an ARM a good idea? Typically, ARMs are best for homebuyers who plan on living in a home for just a few years. The reason: Most ARMs are for 5-years or less; after that time, the ARM typically converts to a higher interest fixed-rate mortgage loan. ARMs can also be a good alternative for real estate investors who cannot obtain a