First time home buyers often gravitate toward adjustable rate mortgage loans, but what’s the draw?
Pittsfield, MA -- (SBWIRE) -- 09/12/2013 -- Real-estate-yogi.com can answer that question by sharing its knowledge of this subject, such as:
-Features of ARMs
-Benefits of ARMs
Understanding the Term
An adjustable rate mortgage (ARM) loan is just what it says it is: A mortgage whose interest rate varies from time to time. These loans start out with a very low rate so it’s easy to handle the payments. However, over time, the rate begins to fluctuate, going higher or lower, as the market indicates. When the rates rise, so does the payment, which can make things a bit sticky. On the other hand, when the rates go down, it gives the homeowner a chance to save up some money for the next variation. Because of the low introductory rate, this type of mortgage is favored by first time buyers.
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Other than the low initial interest rate, an adjustable rate mortgage can vary in term lengths. There are interest rate caps which set a limit on how high interest rates can go on an ARM. There is also an option for interest-only payments if a financial problem comes along that requires one to funnel money elsewhere. Once the situation has been resolved, the person returns to his regular monthly payments.
Benefits of ARMs
Some of the benefits of adjustable rate mortgages include a lower rate than a mortgage with a fixed rate, caps on how much principal and interest payments can increase at each interest rate adjustment and over the life of the loan, and flexibility that a fixed rate mortgage does not have, so if an owner plans to move from the house a few years after he purchases it, or to refinance, it’s easier to do than with a fixed rate mortgage. While a FRM is easier to budget for, many people just starting out prefer this type of mortgage.
Hybrid Adjustable Rate Mortgages
A hybrid is a cross between two formerly separate things. A hybrid adjustable rate mortgage is that, also; it’s a cross between an adjustable rate mortgage and a fixed rate mortgage. It starts out with a set rate for a period of time from 3 – 10 years; then it begins to alter as the housing market indicates. The first years of the set rate allow a new homeowner to save money for the later years when the rates will adjust from time to time. This makes the new payments easier to handle.
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