Choosing the right Mortgage is a critical step in your homeownership journey. Understanding when an Adjustable Rate Mortgage (ARM) might be the best fit can save you money and provide the flexibility you need to achieve your financial goals. Here are four scenarios where opting for an ARM home loan could be the best decision for your financial strategy.
An ARM is a type of home loan where the interest rate can change throughout the life of the loan. Unlike fixed rate mortgages which have a consistent interest rate, ARMs have interest rates that adjust periodically based on market conditions.
With a fixed rate introductory period that typically varies between 3, 5, 7, or 10 years, many homebuyers take advantage of the ARM's low interest rates before it adjusts. These adjustments may occur annually but can vary based on the loan terms, so be sure to check with your trusted local lender to see what ARMs they offer.
Don’t let the adjusting interest rate prevent you from considering this as a valuable option; many ARMs have a maximum interest rate adjustment or ceiling of 2 percentage points during any given year. Some ARMs can't increase by more than 7 percentage points over the life of the loan. Be sure to compare these important features when finding the perfect ARM for your house buying budget.
Local lenders provide a variety of home loan solutions suitable for many homebuyers looking to turn their dream of home ownership into reality. An ARM can help potential homebuyers comfortably manage their monthly mortgage payments by offering flexibility and other financial benefits. Here are some scenarios where an ARM might be the optimal choice:
An ARM could be an excellent option if you plan on moving or selling the home in a few years. This type of home loan provides a fixed rate period of six months to several years. During this time, homeowners can enjoy a lower monthly payment, all while paying less interest than they would with a fixed rate mortgage.
In a high interest rate environment, fixed rate mortgages can make affording a home difficult. Borrowers considering an ARM can enjoy a lower introductory rate, lower monthly payment, and added flexibility than they would with a fixed rate mortgage. As a result, ARMs offer greater purchasing power, making home ownership a dream come true.
Common reasons for taking out an ARM include low rates and monthly payment, added savings on interest during the introductory period, and generating wealth by building equity in the home.
A proven long-term benefit of an ARM is that you can refinance it and take out a fixed rate mortgage should rates drop. With having improved your cash-to-debt ratio, increased your credit score with on-time monthly payment, and created equity in the home, you'll be better positioned to refinance into a fixed rate mortgage.
It may seem counterintuitive, but an ARM makes you money. People who own their home are able to grow their wealth by increasing the equity in their home. That’s largely because a portion of the ARM payment goes toward the principal which increases your stake, or equity, in the property. Owning a home is a proven equity-building investment that improves financial health, security and well-being for working families.
For a quick comparison of ARM vs fixed rate Mortgages, check out this infographic. Infographic is currently in design.
If you're unsure where to begin in the home buying process or are just looking for more information and options, be sure to contact us! We're happy to work with you to determine if an ARM is a good fit or if a different home loan option better suits your needs and goals.
For more information and details, contact our Mortgage Services Department at 770.580.6098 or mortgage@peachstatefcu.org. We offer competitive low interest rates, flexible terms, and easy online applications that are just a click away!