ADJUSTABLE-RATE MORTGAGES
Here at Premier Nationwide Lending of Goose Creek, we’re proud to offer a wide selection of mortgage loans to serve every unique homebuying need and budget. Adjustable-rate mortgages are just one of these products. Available as conventional, VA, USDA or FHA loans, adjustable-rate mortgages can lower the initial costs of homebuying and make owning a home more affordable for the first few years on the property.
If you’re interested in whether an adjustable loan could be right for your Goose Creek home purchase, read the below guide or reach out to Victoria Krueger today.
ADJUSTABLE-RATE MORTGAGES: WHAT ARE THEY AND WHEN TO USE THEM
An adjustable-rate mortgage, or ARM, is a home loan with a variable interest rate. The initial interest rate you have on the loan generally lasts for short period of time (3, 5 or 7 years in most cases). After that period of time is up, the rate can increase, raising the loan’s monthly payment with it. To protect borrowers from very drastic changes in rates, most mortgage lenders have annual and lifetime interest caps in place.
When compared with fixed-rate loan options, adjustable mortgages usually come with lower interest rates and monthly payments at the beginning. This can help buyers save money in the initial few years on the property and may even allow consumers to buy a home sooner than they could have with a fixed-rate loan.
An adjustable-rate mortgage, or ARM, is a home loan with a variable interest rate. The initial interest rate you have on the loan generally lasts for short period of time (3, 5 or 7 years in most cases). After that period of time is up, the rate can increase, raising the loan’s monthly payment with it. To protect borrowers from very drastic changes in rates, most mortgage lenders have annual and lifetime interest caps in place.
When compared with fixed-rate loan options, adjustable mortgages usually come with lower interest rates and monthly payments at the beginning. This can help buyers save money in the initial few years on the property and may even allow consumers to buy a home sooner than they could have with a fixed-rate loan.
Because adjustable-rate loans come with a risk of rate increase, they’re generally best reserved for buyers who don’t plan to stay in the property for long. By selling the home before the fixed-rate period expires, they can enjoy lower monthly payments, less interest paid and still avoid any hikes in rate.
You may also consider an adjustable mortgage if:
- You expect your income to increase by the time your rate fluctuates
- You have the financial means to deal with an increased payment
- You’re willing to refinance before the fixed-rate period expires
Adjustable-rate mortgages are not well-suited for buyers with inconsistent income, as they can be hard to budget for once the interest rate chances. They’re also not ideal for buyers purchasing a forever home. In both of these situations, you’d save money in the long run by using a fixed-rate mortgage instead.
Because adjustable-rate loans come with a risk of rate increase, they’re generally best reserved for buyers who don’t plan to stay in the property for long. By selling the home before the fixed-rate period expires, they can enjoy lower monthly payments, less interest paid and still avoid any hikes in rate.
You may also consider an adjustable mortgage if:
- You expect your income to increase by the time your rate fluctuates
- You have the financial means to deal with an increased payment
- You’re willing to refinance before the fixed-rate period expires
Adjustable-rate mortgages are not well-suited for buyers with inconsistent income, as they can be hard to budget for once the interest rate chances. They’re also not ideal for buyers purchasing a forever home. In both of these situations, you’d save money in the long run by using a fixed-rate mortgage instead.
PROS AND CONS OF ADJUSTABLE-RATE MORTGAGES
The biggest advantage of an adjustable-rate mortgage loan is the low interest rate it offers at the start of the loan. This makes homeownership more affordable for the first 3, 5, 7 or sometimes even 10 years on the property.
Pros:
- Lower interest rates at the start
- Lower monthly payments
- More affordable first few years in the home
On the downside, adjustable-rate mortgages are also risky, as the interest rate and monthly payment can increase with time. This can make it hard to budget for and, in some cases, may make it difficult to stay current on your mortgage.
Cons:
- Interest rates can change
- Monthly payments can change
- May make it difficult to pay your mortgage after the fixed-rate period is up
Adjustable-rate mortgages aren’t as risky as they might seem, though. Most mortgage companies have interest caps in place to protect homeowners, and there’s always the option to refinance as the end of the fixed-rate period nears.
ADJUSTABLE-RATE MORTGAGE ELIGIBILITY
In order to qualify for an adjustable-rate mortgage loan, you’ll need to meet certain credit, income, debt and employment-related requirements. These requirements are determined by the specific type of mortgage product you’ve chosen (conventional, VA, FHA or USDA).
If you’re not sure what mortgage product is right for you or just want to learn more about adjustable-rate loans, contact our Goose Creek office today. Victoria Krueger and the entire Premier team are here to help guide the way.