You may have lots of decisions and options when getting a mortgage loan to buy a house. One of the primary ones is the type of interest rate you choose. The two options are a fixed rate and an adjustable-rate. But which is better? Many people prefer fixed-rate mortgages, but there are times when adjustable-rate mortgages (ARMs) are the better choice. Here are several things to know about ARMs that may help you decide if this is the right option for your situation.
Understand the Terms of the Loan
Before choosing an ARM, it would be helpful to determine the terms of the mortgage and how it works. An ARM loan has an interest rate that changes after a certain amount of time. You should find out how long you have before it changes. Some loans have rates that change after five years, while others might not change for six to ten years. Every loan is different, and you should ask before getting one. When the date comes for your rate to change, you will not know what it will change to ahead of time. The lender will tell you the new rate just before it changes.
The good news is that your rate could decrease. The bad news is that your rate might increase. You never know what will happen to interest rates when you take an ARM loan.
Think About Your Future
Most people that choose ARMs do so intending to move before the rate changes. For example, assume you plan on living in a house for five years. If you plan to move at the five-year mark, you might not care if you have an ARM. By the time the rate changes, you will be selling your home and getting rid of your mortgage. Therefore, the rate change will not affect you. If you plan on staying in the home for more than five years, you might not want an ARM that changes at the five-year mark.
Consider the Benefits of an ARM
One of the top reasons people choose ARMs is for the lower interest rates. If you compare the rates of a fixed-rate mortgage to an ARM, the ARM loan will likely have a lower rate. If you plan on moving before the rate changes, you will likely save a significant amount of money by choosing the ARM instead of a fixed-rate mortgage. If you are not sure which mortgage loan to choose, talk to a mortgage lender to learn more.
Share10 July 2020
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