What Are ARM Mortgages?
ARM stands for Adjustable Rate Mortgages. This, in simple terms, means that the interest rate of your mortgage will fluctuate multiple times during your loan period. Based on your lender and your particular loan, you will have a certain adjustment rate period. This means that there will be a certain number of times (usually yearly) that your interest rate will change—either up or down.
What Are the Benefits of an ARM?
The benefit to using adjustable rate mortgages is that you will be guaranteed a lower interest rate, meaning less costly mortgage payments for the beginning period of your loan. This can be seen as an advantage to a new home buyer because many people are short on money when they first apply their down payment to their new home. The ARM lets people a bit of breathing room for the first period, and then your payments will increase as they go further along. This is especially good for people that are expecting a higher income down the road because as there income goes up, increased cost of the mortgage will be easier to handle.
How Does an ARM Stack Up Against an FRM?
You need to know what the differences between an Adjustable Rate and a Fixed Rate Mortgage are. The differences could be huge when deciding which mortgage you want.
- ARM: Lower initial rates than a FRM
- ARM: Possibility of paying lower interest rates at times during the life of your mortgage.
- FRM: The same rate the entire life of the mortgage
- FRM: Stability
- ARM: More of a gamble, with a good potential payout.
- FRM: You know what you are going to get every time.
As you can there are some differences that need to be considered. Both options have their benefits. But only you can be the one to know which one is the best one for your situation.
An Adjustable Rate Mortgage is a Winner!
If you want to pay less initially, and then have the chance to really cash in and pay low rates for an extended period the ARM is right for you. Remember, you may run risk of paying more after a while, but that initial rate will take away some of the burden. If your finances deem that the ARM is a great option, and you feel like it is something you want to undertake, then by all means...go for it!
