Adjustable-Rate Mortgage: Is It Worth It?

adjustable-rate mortgage

An adjustable-rate mortgage, or ARM, is tempting for many reasons, but it’s also risky in some ways. You need the right information if you’re considering an adjustable-rate mortgage vs. fixed-rate loan. Here’s what you need to know to help you decide if it’s worth it.

What is an ARM Loan?

How an ARM loan or an adjustable-rate mortgage differs from a fixed-rate mortgage is all in the name. The interest on this type of home loan is subject to periodic adjusting interest rates after a set number of years, usually 3, 5, 7, or 10. As interest rates go up and down, the rate on your loan can also go up and down, meaning your payments will also change.

What are the Benefits?

An ARM loan starts with a lower interest rate than a fixed-rate mortgage, saving you money when buying your home. This type of loan is also beneficial if you don’t plan to stay in the house, and you can sell it before the rates change, which is especially good if the rates go up. Sometimes your mortgage payments decrease if the rate adjusts when the interest rates decrease.

What are the Cons?

The biggest potential con of an adjustable-rate mortgage is the chance your payments could increase if interest rates increase. Making larger payments can be challenging for some homeowners. Another factor is how complex this type of loan is. They have specific structures and fees, and it can take time to understand the contracts. If you don’t have a trustworthy realtor or lending agent, you could end up with a loan you might not have agreed to if you fully understood the terms and rules.

Before deciding whether an adjustable-rate mortgage is worth it, talk to a reliable, experienced lender. Contact the team at Midland Mortgage Corporation for guidance and loan information you can count on.

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