When Should I Get an Adjustable Rate Mortgage?

Though adjustable rate mortgages (ARM) got a bad rap during the housing collapse, they’ve been coming back in vogue more recently, particularly among well-to-do borrowers. Mark Zuckerburg, CEO of Facebook, is said to have refinanced his home with an ARM of 1.05% this summer, a rate that most people, much to their chagrin, cannot attain. But as we mentioned in our post last week, there are plenty of homeowners regardless who could potentially benefit from an ARM.

ARM’s allow for an introductory stretch in which a lower interest rate is paid as compared with a fixed loan. Beyond that point, rates can go either up or down, but with the current low rates, the security of locking in at a fixed rate is attractive to many homeowners and buyers. That reliable static rate comes with a price, though, with the difference between rates on 30-year fixed-rate mortgages and adjustable rate mortgages being about 1%, which is over double the amount of five years ago.

The point is, if you’re a homeowner who is planning to move or pay off your mortgage in upcoming years, an ARM could deliver money in the bank. For the first five years, monthly payments will be considerably less with an ARM than with a fixed-rate.  Though after those five years payments will make a significant increase – up to 5 percentage points greater – it wouldn’t be until the seventh year that the savings achieved during the first five would be diminished. If you plan to modify your living situation by moving into a new place over the next 5-6 years, then, it may make better sense to adjust to an adjustable rate mortgage.

At Colony Title, our associates can help advise you on matters like mortgages, and also assist in the closing process when it comes to homeownership. If you have questions, the Maryland real estate insurance experts at Colony Title Associates can be reached by calling 410-884-1160 or visit ColonyTitle.com today!

You can also follow Colony Title on Facebook, Twitter, and LinkedIn.

Source:

When an adjustable-rate mortgage makes sense

 

Leave a Reply