Adjustable Rate Mortgage Loans with Lower Initial Interest Rate


Pittsfield, MA -- (SBWIRE) -- 03/26/2013 -- has done some research on adjustable rate mortgages, and is happy to share what it learned, such as:

- Defining the Term
- Comparing Fixed and Adjustable Rates
- How to Use ARMs
- The Better Deal

Adjustable Rate Mortgage Defined

An adjustable rate mortgage (ARM) is one in which the interest rates can change, usually based on an index such as the U.S. Treasury Bill’s rate. An adjustable rate mortgage loan remains at the same rate for the initial period of the mortgage. That period can be as short as a month or as lengthy as 10 years. These days, the 5/1 ARM –meaning that the first 5 years are at a fixed rate which then changes each year – is most popluar.

Difference between ARMs and FRMs

The drawback of an adjustable rate home loan is that if the economy goes awry, the interest rate on one’s mortgage may do the same thing. This means that a homeowner could end up paying more than a person who has a fixed rate for an undetermined time. If one opts to go with a fixed rate mortgage (FRM), he will never experience a change in his interest rate, but he may end up paying more interest on his home loan than someone who has an ARM over the life of the loan.

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Best Use of ARMs

Homes are very expensive, so people are choosing the ARM to purchase houses they really cannot afford – if they are financially undisciplined. However, if a person is dedicated to the budget he devises, an adjustable rate mortgage loan might be just the ticket. When a homeowner puts the money he saves by utilizing an ARM into a high-yield savings account, he can keep it for when his rates go up. This is the best use of ARMs – being able to save a great deal of money over time.

Which is Better?

For the first 5 – 20 years, an ARM is definitely a good deal, as long as the economy remains as it is. If it improves, Arms are wonderful for the amount a person can save on them. If, however, the economy becomes shaky, a FRM is safer. It is at the discretion of the individual to determine if adjusted rate mortgage loans or FRMs are the better deal.

About Real-Estate-Yogi is a helpful consumer resource website located in Pittsfield, Massachusetts that happily connects people who have questions about real estate with the professionals in that area who can give them answers. For a free consultation, dial 800-987-1397.