In some circles of the mortgage world, adjustable-rate mortgages have taken on a negative stigma over the years. They’re risky, people say, and can be associated with negative amortization over time that can lose thousands of dollars of the life of a home loan.
In reality though, every loan process comes with some degree of risk – and for people in many situations, adjustable-rate mortgages are easily the best option. At Primary Residential Mortgage, our expert brokers can walk you through exactly which type of loan you might stand to benefit most from. Here are some of the main benefits of adjustable-rate mortgages.
What is an Adjustable-Rate Mortgage?
Adjustable-rate mortgages (ARMs) are mortgages where it’s possible for interest rates and outstanding balances to change over the life of the loan. Even the title is slightly misleading, though: Most ARM loans are actually fixed-rate loans for the first five or ten years, after which they indeed become adjustable based on market factors.
However, before you worry too much about risk, know that there are caps in place on how much your mortgage rate can be adjusted. You usually can’t see your rate raised more than 5 percent above your initial number, and between 2 and 5 percent per adjustment period. If your loan starts out at 3 percent, the highest it can ever get over the entire life of the loan is 8 percent at the very highest.
Lower Interest Rates
Interest rates are generally much lower for ARMs than for fixed-rate loans, meaning that especially during that five-to-ten-year fixed rate period (and often still afterward), you’ll enjoy lower monthly payments.
For people looking to refinance a home, adjustable-rate mortgages are a great way to go. You can refinance up to 95 percent of your home’s value. The fact that interest rates remain so low for five or ten years initially also makes ARMs a great target for people who may sell their home before that term ends.
Adjustable-rate mortgages are available in various packages, generally 15- or 30-year terms. There are several types of government-backed ARMs, including FHA-backed loans and VA loans available to people who are eligible. People may have once considered these loans risky, but now they offer some of the most overall flexibility out there, especially for anyone looking to flip or refinance their house in the short term.
Want to learn more about adjustable-rate mortgages, or have any other questions within the mortgage industry? Our expert brokers at Primary Residential Mortgage are standing by.
The advantages of adjustable-rate mortgages. Call Primary Residential Mortgage today to see if an ARM might be right for you.