Adjustable-rate mortgages (ARMs) can be a valuable tool for homebuyers, and there is no need to fear their return. Here are a few reasons why:
- Initial Lower Interest Rates: ARMs typically offer lower interest rates than fixed-rate mortgages (FRMs) during the initial fixed-rate period. This means lower monthly payments, which can benefit buyers who plan to sell or refinance within a few years.
- Flexibility: ARMs offer flexibility in terms of loan options. Depending on the lender, you can choose the length of the initial fixed-rate period, typically ranging from 3 to 10 years. This allows you to tailor the loan to your specific needs.
- Potential for Savings: Your monthly payments can also decrease if interest rates decrease after the initial fixed-rate period. This can result in significant savings over the life of the loan.
- Short-Term Ownership: An ARM can be a smart choice if you plan to own the property for a relatively short period. For example, knowing you’ll be moving within five years, you can take advantage of the lower initial interest rate without worrying about potential increases.
- Rate Caps: ARMs have rate caps that limit the interest rate’s increase during each adjustment period and over the life of the loan. This offers protection against drastic rate hikes and helps you budget accordingly.
- Market Factors: The return of ARMs does not necessarily indicate an impending housing market crash. Lenders offer ARMs because they believe the market will remain stable and interest rates won’t skyrocket.
However, it’s important to consider your financial situation and long-term plans before choosing an ARM. If you’re uncertain about interest rate fluctuations or plan to stay in the property for an extended period, a fixed-rate mortgage may be a safer option. Consulting Scott and Mary Tynell can help you make an informed decision based on your specific circumstances.
My Home On The Cape's Blog 