If you would like to pay off your mortgage within a specific amount of time, or you will not experience financial hardship if the rate increases down the road, an adjustable-rate mortgage loan may be a good option to consider. Because the terms of the loan vary significantly from one adjustable-rate mortgage to the next, it’s essential to understand the terms so you can know what to expect.
The team at Midland Mortgage Corporation will help you to determine if this loan type is right for your specific financial situation and homeownership goals.
What Is An Adjustable-Rate Mortgage Loan?
Also known as ARM, an adjustable-rate mortgage loan is a type of loan in which the interest rate for the loan balance adjusts throughout the lifetime of the loan. The initial rate is set or fixed for a certain period of time and then resets, typically each year or sometimes monthly. This means the payment will rise over time, so it is crucial to ensure you will be able to afford any potential increase if the time comes.
How Does An Adjustable-Rate Mortgage Loan Work?
You will typically see two different numbers with an ARM loan:
- The first number represents the length of time you will have a fixed-rate.
- The second number indicates how many years you will have an adjusted floating rate, to be determined.
In most cases, ARM loans feature rate caps, limiting how high the interest rate can be and how drastically payments can change. Because of the uncertainty of an AMR, it’s important to work with a trusted lender who can layout the facts for you and guide you in the right direction.
Are Adjustable-Rate Mortgage Loans A Good Idea?
Many borrowers feel nervous about ARM loans because the initial interest rate doesn’t last for the life of the loan. However, there are benefits that are important to consider. Here are three reasons why ARMs are a good choice for the right borrower:
- Lower rates than fixed-rate mortgages: The initial rate is locked in for a specific time span, typically for three, five, or ten years. This time with the lower interest rate can help you to build home equity faster.
- Rates can decrease instead of increase: Once the initial set-rate period ends, the interest of the loan will adjust based on the current federal interest rates. Depending on the rate of your loan and current federal rates, it’s possible you will experience a decrease. If not, refinancing may be a good option to keep your loan affordable.
- Put time in your favor: In the case that you move often or don’t plan on living in a new home for 30 years, there’s no reason to go with a fixed rate 30-year loan. An ARM can make a home more affordable for you if you plan to move in the future.
Let Midland Mortgage Help You To Determine If An ARM Is Right For You
Our experienced mortgage counselors know the ins and outs of AMR loans and can walk you through the details to help you make the right financial decision. There are many different types of AMRs available, including hybrid products, interest-only loans, and more. Connect with us online now to find out if an Adjustable-Rate Mortgage aligns with your home-buying and financial goals.