Adjustable-Rate Mortgage: When Should You Consider It?

Mortgage rate noteAn adjustable-rate mortgage (ARMs) is a type of home loan with an interest rate that changes over time. You may be wondering why someone would choose this over a loan with a fixed interest and monthly payment. The main appeal of an ARM, however, lies in having a low rate (lower than a fixed-rate loan) during the initial period. This will then fluctuate (up or down) at predetermined intervals.

When an ARM is Right for You

You don’t intend to keep the home for a long time

If you’re looking for a short-term property or a starter home, you can definitely benefit from ARM’s lower monthly payment for the first three years or so. Utah home loan companies note that this means that you’ll pay less during the set initial period than you would for a fixed-rate loan.

You don’t mind taking the risk (for rewards)

Taking an ARM carries some sort of risk as your payment could increase. If the rates, however, decline, you could save more money. This is not possible with a fixed-rate mortgage, as your payment will remain the same throughout the loan’s life. You, however, need to make sure that you can afford to take on the risk of higher monthly payments.

When an ARM May Not Be For You

You want a house for the long haul

If you intend to have a “forever home,” a fixed-rate loan may be ideal. This is because you will be living in the house throughout the life of the mortgage. If you found a home that you like to grow old with, build a family, and have children, the initial low rate of an ARM may be the most practical option.

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You value security

If you are not comfortable taking financial risks, you can forgo taking an ARM. A fixed-rate loan can give you peace of mind, as you’ll know what your monthly payments will be throughout the life of the loan. This will also allow you budget your finances better.

Consider your options carefully before applying for a mortgage. Your decision should fit your finances and long-term goals. Talking to a reliable lender can help you make a sound decision.

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