The Case for Adjustable-Rate Mortgages

Man showing a mortgage contract

Are you planning to buy a house? If so, you might be looking for ways to finance it; the typical means is to get a mortgage. The latter has different types with their own pros and cons. The type that you need to consider is an adjustable-rate mortgage (ARM).

A mortgage broker from Tempe cites the following reasons you should choose the ARM.

Lower Payment

The advantage that entices many to choose this loan option is because of the lower payments as soon as one gets a mortgage. The monthly payments are almost always lower than its fixed-rate counterpart. It is also a safe alternative if you don’t plan to stay long in the house, you just bought.

It was only a place to live in temporarily. This is also a viable choice if your salary isn’t high yet, but you expect an increase in the next few years.

Adjustable Rates Over its Term

As its name states, ARM adjusts its rate after the introductory period. The interest rate increases or decreases based on an index. The fluctuations of the latter may lead to a higher, about the same or lower payment.

This is a huge risk that some are willing to take because its fixed counterpart locks a person in on a high interest rate they got when they first bought the house. You’ll never know what the rates are five to ten years from now.

Flexibility

The ARM allows prospective homebuyers to negotiate a hybrid mortgage. The latter means they can choose an initial fixed rate term before the adjusted rates begin. This enables you to fit the rate based on your needs and current or possible future earnings.

There is a risk when a homebuyer chooses ARM over fixed-rate. The interest rates may take a sudden jump, and you may find yourself paying more than you expected. However, the advantages it provides mitigate the risks involved.