I've noticed my buyers are consistently opting for Adjustable Rate Mortgages (ARM) on the purchase of the new homes. While this is a monthly cost saving method for homeowners, it is also important to understand the long term ramifications.
Interest rates at still holding at all time lows from the past 30 years, but slowly and steadily rising. If your loan is for a term of 7 to 10 years, you must refinance at some point and most likely it will be at a higher rate. It is reported and documented, rates are on the rise and undoubtedly will be so for the next year. If the real estate market begins to soften, equity will slow and possibly be on the decline. If so refinancing won't be an option and the rates will reset after those 7 and 10 years and could be much higher. Please be sure to work closely and carefully with your preferred lender to ensure you understand your choices when applying for a loan.
I an ARM good for ME?
A LIBOR ARM may be good idea if you want:
*to minimize your monthly payment.
*to lower your interest rate and monthly cash flow
*to take advantage of the equity in your house.
An ARM is a good refinance option if you want to consolidate consumer debt such as credit cards. Any ARM is a good idea if:
*ARM interest levels are significantly below fixed-rate interest charges
*You won’t be staying in the house for more than five years (especially if you have a locked-in rate for the first three, five or seven years)
*You anticipate a higher income in the future.
ARMs are not a good idea if:
*initial rates are comparable to fixed-rate loan rates
*high closing costs offset the low interest rate