All about Adjustable Rate MortgagesPosted by Carey Frankel on Monday, September 5th, 2011 at 3:18pm.
Throughout much of the housing crisis, the term “adjustable rate mortgage” was uttered with disdain.However, adjustable rate mortgages may have gotten a bad rap, simply because there were many, many homebuyers who took them out without considering the future. Here’s the low down on adjustable rate mortgages and why they still serve a purpose in today’s home loan market:
Adjustable rates mortgages, also referred to as ARMs, are home loans that adjust at certain intervals, as detailed in the home loan program. There are ARMs that adjust yearly, every five years, or even every ten years.
Adjustable rate mortgages are typically tied into some kind of index, which determines how much interest you pay on the loan during any given time period. Sometimes your interest rate may rise, sometimes it may fall. Before getting into an ARM on a Jacksonville Beach property, take note of the index and how it will change.
Adjustable rate mortgages are typically chosen because they offer an initial, low interest rate. ARMs may be best for individuals who expect to make more money in the future or who don’t plan on living in their current residence for an extended period of time.
ARMs got a bad rap because many people were locked into them when the housing crisis began, thereby leaving them with monthly mortgage payments they could not afford. Because this could realistically happen again, home buyers should be aware of the downfalls of ARMs and whether choosing this type of mortgage is right for them.
Maintaining a strong credit score is crucial when choosing an ARM because homeowners who want to refinance when their ARM adjusts may not be able to do so because of a low credit score. Unless your credit is strong, you can be certain you will be stuck with an adjusting mortgage and an ever-rising interest payment.
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