Now that you know what an ARM is and how it works, you may be wondering what the advantages and disadvantages are. So let’s explore that issue.
Offering adjustable rates allows lenders to transfer part of the interest rate risk from themselves to the borrower. If you get a fixed rate mortgage and the interest rate then goes up, it costs the lender money. However, if you have an adjustable rate mortgage, as the interest rate goes up, so does your payment, thus compensating the lender. Adjustable rate mortgages are particularly useful when unpredictable interest rates make fixed rate loans hard to get.
One of the main advantages of an adjustable rate mortgage is that the initial interest rate is lower than that of a fixed rate mortgage. A lower rate means lower payments, which may help you qualify for a larger loan. This is an important detail if you expect your future earnings to rise. In this case, the ARM will allow you to qualify for a larger loan amount earlier rather than later.
However, this information should only be used with care. If you use an ARM to qualify for a larger loan amount than a fixed rate would allow you and the interest rate then rises drastically or your income doesn’t rise, you may not be able to afford the larger monthly payments, thus causing you to default on your loan.
A situation in which an adjustable rate mortgage makes sense would be if you are only going to keep the house for a short period of time. If you are only planning to own your house for only a few years, the risk of the interest rate rising goes down. This means that you will get a better rate with an ARM, making it a good choice. However, if you plan on staying in your home for a long period of time, a fixed rate may be a better option.
The lesson here is to have a plan. Know what your goals are in purchasing a home and plan for all eventualities. Do your research when shopping for an ARM and consider the worst-case scenario.Back to Table of Contents
Dont Miss a New Listing Again!
Already registered? Login
FREE AUTOMATED EMAIL UPDATES
Sign in to get a FREE boat tour! You'll know about new listings befor the sign goes up. CLICK HERE
*Contact Information NOT Shared*
Copyright 2018 Multiple Listing Service of Greater Fort Myers and the Beach, Inc.; All rights reserved. The data relating to real estate for sale on this web site is the copyrighted and proprietary database of the Multiple Listing Service of Greater Fort Myers and the Beach, Inc. The properties displayed may not be all of the properties in the MLS\' database, or all of the properties listed with Brokers participating in the cooperative data exchange program. Properties listed by Brokers other than are marked with BR logo and include the name of the listing Brokers. Information provided is thought to be reliable but is not guaranteed to be accurate; buyers are advised to verify facts before making the decision to purchase a property. No warranties, expressed or implied, are provided for the data herein, or for their use or interpretation by the user. Information provided is for consumer\'s personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. This site will be monitored for \'scraping\' and any use of search facilities of data on the site other than by a consumer looking to purchase real estate, is prohibited. Listing broker has attempted to offer accurate data, but buyers are advised to confirm all items. Information last updated on 2018-07-23.
© 2018, The data relating to real estate for sale on this Website come in part from the Broker Reciprocity Program (BR Program) of M.L.S. of Naples, Inc. Properties listed with brokerage firms other than are marked with the BR Program Icon or the BR House Icon and detailed information about them includes the name of the Listing Brokers. The properties displayed may not be all the properties available through the BR Program. BR data on this website is provided by on behalf of Diane Fowler. The source of this real property information is the copyrighted and proprietary database compilation of the M.L.S. of Naples, Inc. Copyright 2006 M.L.S. of Naples, Inc. All rights reserved. The accuracy of this information is not warranted or guaranteed. This information should be independently verified if any person intends to engage in a transaction in reliance upon it. Data last updated 2018-07-23 07:52:16.
© 2018 Bonita-Estero MLS All rights reserved. Information deemed to be reliable but not guaranteed. The data relating to real estate for sale on this website comes in part from the Broker Reciprocity Program. Real estate listings held by brokerage firms other than are marked with the BR logo and detailed information about them includes the name of the listing brokers. Listing broker has attempted to offer accurate data, but buyers are advised to confirm all items. Information last updated on 2018-07-23.