What Is an Adjustable-Rate Mortgage?

Are you considering buying a new home and want to find a mortgage program that suits your needs? Home Financing Center is here to help! Keep reading as we explore adjustable-rate mortgages and how they can be a great alternative to traditional fixed-rate loans.

Adjustable-rate mortgages (ARMs) are a type of mortgage where your interest rate could fluctuate throughout the term of your loan. At the start of the loan, the interest rate is typically lower than a fixed-rate mortgage. The interest rate adjusts periodically based on financial market conditions. This means your monthly payments can change over time.

How Does an ARM Work?

An ARM typically offers a fixed interest rate for the first few years of the loan, usually five or seven years, before reset periods begin. After that, the interest rate will adjust annually or in predetermined intervals. The amount of the adjustment is tied to a financial market index, which is what lenders use as a benchmark interest rate to determine how adjustable-rate mortgages are priced.

What Are the Benefits of an ARM?

The biggest benefit of an ARM is that it can offer a lower initial interest rate than a traditional fixed-rate mortgage. This can be a significant advantage for those who are worried about qualifying for a larger loan. Additionally, if you’re only planning on living in the home for a few years or just want to build equity in the home quickly, an ARM might fit your needs perfectly.

couple discussing mortgage rates with lender

What Are the Risks of an ARM?

The downside to an adjustable-rate mortgage is that your payments may increase significantly after the initial fixed-rate period. Interest rates can be unpredictable, and the cost of your loan can increase while your income remains the same, making budgeting more challenging.

Who Should Consider Getting an ARM?

ARMs can be an excellent option for those who are first-time homebuyers, have a fluctuating income, or plan on moving before the reset period begins. If you’re comfortable with the unpredictability of interest rates and have a clear plan for your finances, an ARM might be the right choice for you.

Contact Home Financing Center

Adjustable-rate mortgages can be an excellent alternative to traditional fixed-rate loans. They offer a lower initial interest rate, making them ideal for first-time homebuyers or those who want to maximize their investment. With the help of Home Financing Center, you can find an adjustable-rate mortgage program that will put you on the path to homeownership. Contact us today to learn more about ARM and how it could be the right choice for you.

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