Should You Choose an Adjustable-Rate Mortgage?

Mortgage Loan ContractMany home buyers choose fixed-rate mortgages because of their predictability. The 30-year loan is standard, but there are also shorter terms like 10- and 15-year mortgages. As its name suggests fixed-rate mortgages have fixed or constant interest rates throughout the life of the loan. This means that they will not change for 10, 15, or 30 years, depending on your chosen term.

Taking Risks

Fixed-rate sounds safe for many borrowers, especially for those who don’t want to take risks on their interest. Industry experts at share, however, that if you are considering an alternative, an adjustable-rate mortgage (ARM) may work for you. This starts with a lower teaser or initial rate that will reset or adjust after a specified period. The adjustments in rate will cause changes in your monthly payment.

Rules and Terms

Mortgage companies in Portland note that the loan term for an ARM varies as well. The rules of the mortgage are stated in the contract, so it is best to read the terms carefully before signing. It is also important to remember the ARMs are not created equally. Therefore, it is best to deal with a reputable mortgage company or seek help from a knowledgeable friend or family member.

Get to Know ARM

If you’re considering an ARM, find out the highest possible monthly payment. Know the teaser rate and introductory period, as well as the different types of caps that control the way your interest can change. It is best to compare caps when comparing mortgages from different lenders. It is always advisable to know how much your interest rate can adjust before finally committing.

ARMs are a good choice in certain cases. If you don’t want to get tied up with the same interest rate for several years, you can consider an ARM. It is also beneficial if:

  • The interest rates are going down, which means that you’ll have lower monthly payments.
  • You’re thinking of selling the house or refinancing before the rates change.
  • You are certain that your income will grow and you’ll never have a problem if the monthly loan payment increases.

Choosing a mortgage can be complicated so it is important to educate yourself about the different types of loans. Be sure to work with a reliable to a lender that will help you make an informed decision.