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Adjustable Rate Mortgages - The PROS & CONS

Now that you know what an ARM is and how it works, you may be wondering what the advantages and disadvantages are. So let’s explore that issue.

Offering adjustable rates allows lenders to transfer part of the interest rate risk from themselves to the borrower. If you get a fixed rate mortgage and the interest rate then goes up, it costs the lender money. However, if you have an adjustable rate mortgage, as the interest rate goes up, so does your payment, thus compensating the lender. Adjustable rate mortgages are particularly useful when unpredictable interest rates make fixed rate loans hard to get.

One of the main advantages of an adjustable rate mortgage is that the initial interest rate is lower than that of a fixed rate mortgage. A lower rate means lower payments, which may help you qualify for a larger loan. This is an important detail if you expect your future earnings to rise. In this case, the ARM will allow you to qualify for a larger loan amount earlier rather than later.

However, this information should only be used with care. If you use an ARM to qualify for a larger loan amount than a fixed rate would allow you and the interest rate then rises drastically or your income doesn’t rise, you may not be able to afford the larger monthly payments, thus causing you to default on your loan.

A situation in which an adjustable rate mortgage makes sense would be if you are only going to keep the house for a short period of time. If you are only planning to own your house for only a few years, the risk of the interest rate rising goes down. This means that you will get a better rate with an ARM, making it a good choice. However, if you plan on staying in your home for a long period of time, a fixed rate may be a better option.

The lesson here is to have a plan. Know what your goals are in purchasing a home and plan for all eventualities. Do your research when shopping for an ARM and consider the worst-case scenario.

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Testimonials Page

Melissa Oliver was such a delight to work with, she had such a great energy and realism about her. And she walked us through the process every step of the way. And always had our best interest at heart. We trusted her advise and insight she really know what its all about. We are so glad she was there for us and would use her again if needed. Mimi Rajnak
What a great buying experience!! Melissa and the "O" team were amazing and we can't give them enough praise for their efforts. They were very quick to respond to our needs and were on top of the process the whole way. We found the home of our dreams and we have the "O" team to thank!! Visit their office, you wont be disappointed. Josh R.
Melissa is a Real Estate professional serving the Mother Lode Communities with top quality service and expertise. Her understanding of the local market is second to none and her ability to help buyers and sellers both is outstanding. Thanks you Melissa, for being a part of my experience. Rick Daniel
Definitely recommend Melissa and her team..great real estate agent!!! Sylvie Williams
Melissa has come though for me in all my real estate needs..Always going far beyond my expectations!!! She knows the area like the back of her hand...Should be anyones first choice here in the Motherlode! John Chiarpotti
Very knowledgeable and experienced. Would strongly recommend her to anyone with any real estate needs. Hands down the best Realtor in the county! Jacob Ramsey
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