Although their popularity has been reduced over the past few decades, adjustable rate mortgage loans are beginning to make a comeback. Even though the rates are still low on fixed rate loan, ARMs are good choices under certain circumstances.
Pittsfield, MA -- (SBWIRE) -- 07/09/2013 -- Adjustable rate mortgage loans are those without a fixed interest rate throughout the entire term of the loan. While their popularity has been in decline recently, it is starting to re-enter the market place. These loans have a fixed rate for a specific period of time, but after the expiration of this period, the interest rate will fluctuate for the remainder of the term. In most cases the interest rate on the loan adjusts on an annual basis based on a current market index (either LIBOR or the US Treasury Index) added to the lender’s margin or markup. These loans were very popular up until the early part of the 21st century.
Under certain circumstances an adjustable rate mortgage loan is still advisable. One of the advantages is the interest rate on ARMs are approximately one percent lower than a fixed rate loan. This is generally an across the board statement and can actually save the new homeowner hundreds of dollars every month on the principal and interest.
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Another great candidate for an adjustable rate mortgage is a buyer who doesn’t have plans to live in the home for a long period of time. This allows the homeowner to sell before the end of the fixed period or refinance into another ARM. Now that the economy and real estate market are once again improving, this type of mortgage will once again be an option for many homeowners. Choosing an ARM or fixed rate works on a case by case basis and is contingent upon many variables; however, those who only plan to stay in the home for a few years are well-suited for ARMs.
Over the past couple of weeks the adjustable rates mortgage has begun to look better for many potential homeowners as mortgage rates are becoming to creep upwards once again. Projections for 2014 are indicating the rates should continue rising which will make the adjustable rate mortgage more popular once again. The monthly savings homeowners see in an adjustable rate mortgage is one of the many variables that one must consider before determining whether this is the right type of mortgage for you.
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