Adjustable rate mortgages are becoming popular again after nearly vanishing over the past few years! Many people took out an adjustable rate mortgage before the recession, and when their ARMs came time to reset many people tried to refinance out of them. Unfortunately, some of these homeowners discovered that the value of their home had dropped and were upside down causing them to ultimately walk away from the home or do a short sale. Now as fixed rates are set to creep up again many are turning to the ARMs again in order to take advantage of the very low rates.
ARMs typically offer an introductory low rate for the first few years of the loan. These loans are referred to as 5/1, 7/1, 10/1, depending on the length of the reduced interest rate. This means that for the the borrower will enjoy this reduced rate for the first few years, until it reaches the adjustment period. On a 7/1 ARM, the start rate would be lower for the first 7 years and then adjust once a year after that to the prevailing caps. There are predetermined rate caps for each adjustment and are usually stepped up gradually by about 2% per year. However, they can climb as much as 6% over the remainder of the loan.
If utilized correctly, though, ARMs can be a good option. This depends on several factors, especially including how long you plan on staying in the home. If you take the 7/1 ARM option and will be moving or selling within the first 7 years, then you will not be exposed to any rate increases (ultimately saving you hundreds or even thousands over the life of the loan!). Do keep in mind that plans can change unexpectedly, whether it is a change in employment, loss of a partners income or a change in familial status
Before jumping into anything, I suggest doing a little research on your own. There are many resources on the internet such as The Federal Reserve website and many lenders also have information that you can down load right off of their websites as well.
For more information, or to speak to Rob about securing a home loan, be sure to reach him by phone at (267) 207-7196 or by e-mail at rlapierre@fairwaymc.com. Rob’s website is also an excellent resource for mortgage information!
NMLS ID#192175
Fairway Independent Mortgage Corporation, 321 Old York Rd, Suite 216, Jenkintown, PA 19046, NMLS ID # 2289
This is a guest post by Robert LaPierre, Loan Officer and Branch Manager of Fairway Independent Mortgage Corp in Jenkintown, PA.
