What Is an Adjustable Rate Mortgage and Is it Right for Me?
Gabriel TraversoLoanBiz Columnist
Shopping for a new home loan can be confusing, but it doesn't have to be. Arm yourself with information and be organized. You just might find that you can get the perfect home loan for you.
What is an ARM?
An adjustable rate mortgage
(ARM) has a mortgage interest rate that can change. Because of constant market
fluctuations, this means that your mortgage payments could either go up or
down, depending on changes in mortgage interest rates and how your loan works.
Most ARMs have an introductory rate, often called a teaser rate, and sometimes
this rate will be shockingly low. Once the introductory period is up on your home
loan, however, the interest rate may adjust. Each ARM works differently. Some loans
adjust once a year, others less frequently. It is important to understand how
the ARM you're considering works and how often it adjusts, because this affects
your payments.
Is it Right for Me?
Not all ARMs are the
same, and they don't always make an ideal new home loan. If you have a job
where you are paid in large chunks every quarter, or receive large commissions
annually, then an ARM could be perfect for you. You can get into the home you
want now with a low introductory rate and then when you receive payment, you
can start paying down the loan. It's generally recommended that you refinance
before your ARM resets. Also keep in mind how much equity you have in this home.
If you have a small down payment and little equity, and your mortgage payments
go up at the reset--will you have a reserve to draw on? What if home prices
drop?
Consider all factors before
you make your decision, ask plenty of questions, and make sure you get a home loan
that fits your situation.
About the Author
Gabriel Traverso is a freelance writer, professional musician, and artist. He resides with his family in Reno, NV.
