An Adjustable Rate Mortgage can save you thousands of dollars over the life of a home loan. Sometimes referred to as floating Mortgages or ARMs, these borrowing opportunities have unique incentives that deliver financial benefits when used strategically. If you're considering purchasing a house and are unsure about the best loan, a deeper understanding of an Adjustable Rate Mortgage’s financial benefits can help you make an informed decision.
Adjustable Rate Mortgage Benefits Exist
Adjustable Rate Mortgage rates are based on a benchmark index that reflects conditions in the current market. Local lenders may offer six months to several years at the introductory rate before changes in rates occur. Monthly installments may increase or decrease depending on the current market. By better understanding the benefits of ARMs, working families can employ them to save a substantial amount of money.
Benefit #1: Lower Payments and Initial Interest Rate
During the initial grace period, the Adjustable Rate Mortgage interest rates remain fixed. The rates are typically lower than those the same individual might qualify for if they applied for a fixed Mortgage. That means Adjustable Rate Mortgages cost working families less each month.
While saving money each month on interest certainly adds up, there’s more potential savings. Homeowners no longer pay rent, and a portion of the monthly Mortgage payments reduce the principal creating equity. Compounding this equity benefit, rising home values can quickly improve your equity and overall financial well-being. There are many ways homebuyers save when they utilize an adjustable rate mortgage.
Benefit #2: Pay House Principal Down Faster
A little-known Adjustable Rate Mortgage strategy can help you pay down your home’s principal faster. Adjustable Rate Mortgages offer low-interest introductory periods in which the payment does not change. For some lenders, this introductory period lasts for five to ten years. During this grace period, homeowners can put salary increases and additional savings to work by paying more each month and having it applied directly to the principal.
Consider using a Mortgage calculator and running the numbers between the monthly installment of a fixed Mortgage and an ARM. The difference could be applied to the principal, helping you pay off your home faster. Then, consider determining how much money paying off the house early would save in terms of interest payments. An adjustable rate mortgage has the potential to offer homebuyers great savings!
To discover if an ARM is best for your budget, download our free checklist:
Benefit #3: Buy More House
If you’re in the market for a house, you’ve probably started running the numbers to determine how much house you can afford. Calculations usually involve saving up a down payment and securing a mortgage with an affordable monthly installment. Financial planning experts often advise homebuyers to assign no more than 28 percent of their gross monthly income to a Mortgage payment. Running higher than that figure can infringe on leisure spending, making homeownership more stressful.
Because Adjustable Rate Mortgages offer low-interest introductory periods, your monthly payments are generally lower than those of fixed-rate loans. Homes previously out of reach can now be put on your viewing list. With an ARM, you can effectively afford to buy more house and enjoy your quality of life with the understanding that in five of ten years when the grace period is over, you may be in a better financial place.
Benefit #4: Potential for a Lower Payment After the Fixed Period
One of the concerns homebuyers have regarding adjustable rate mortgages involves monthly payment uncertainty. When rates in the past were at historic lows, concerns of market conditions could rise making the monthly installment unaffordable were understandable, to some degree. Currently, the country is in a period where interest rates could be trending down. Should interest rates dip, you could benefit from the savings.
Benefit #5: Refinancing Is Always an Option
Local lenders are keenly aware that not everyone has the risk tolerance to take out a home loan that could potentially increase at some point. That’s why ARMs enjoy a fail-safe caveat of refinancing to protect community members from higher interest rates once the fixed interest period expires. Be sure to check with your local lender to review how soon can you refinance an adjustable rate mortgage into a fixed loan product such as a fixed rate Mortgage or Home Equity Loan.
Peach State Can Help You Find The Perfect Mortgage For Your Budget
When it comes to choosing the best home loan to fit your needs and lifestyle, it’s best to work with a lending professional like one of our Mortgage Specialists at 770.580.6098 or mortgage@peachstatefcu.org. Our Mortgage team will listen to your needs and goals to find the best mortgage option for your future investment. We’ll answer any questions you have and walk you through every step of the application process.
At Peach State, we understand what it takes to turn homeownership into a reality, and we’d love to help make your dreams come true. We’d love to help you get pre-approved today!
An adjustable rate mortgage may save you thousands but it is always good to have a firm grip on your budget. Find your perfect payment in our free guide, "How Much House Can I Afford in Georgia or South Carolina."
