An adjustable rate mortgage can be an enticing proposition for many people looking to buy a home. The initial low interest rates can be very attractive. Some people will say that adjustable rates are a great idea, while other people would advise you to stay away. The truth is that both sides are correct. Here are some things to consider before securing an adjustable rate mortgage (ARM):
Know The Index
The index refers to how often a lender can raise the interest rate on a mortgage. Lending companies use several popular indexes. It is safe to assume that your interest will increase over time with an ARM. Checking which index the company uses will allow you to know if you can afford periodic raises once your initial interest rate expires.
How Long Do You Plan To Keep The House?
Most ARMs initially come with a low interest rate. This wouldn't be very advantageous to a family that plans to live in that same house for a large number of years. However, ARMs may be a good idea for anyone who wants to sell or flip a property in a few years. Under this scenario, the loan can be paid off before the lender can significantly increase the interest.
Will You Be Receiving Additional Income?
An adjustable rate mortgage may be a good idea if you are expecting your income to rise in the near future. A number of lenders offer low-income families low adjustable interest rates. The principal and interest becomes easier to handle once you earn a raise or promotion.
When it comes down to it, your decision on getting an adjustable rate mortgage should be based around how quickly you think you can pay the loan off. ARMs can be a great option for real estate investors that are look to repair and then quickly sell a property. Individuals and families that are looking to live in a home for an extended period of time would be better off using a traditional fixed interest rate mortgage.