adjustable rate mortgage a good idea

Adjustable Rate Mortgages: Are they Right for You?

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With so many options on the market today when it comes to financing your home, which should you choose? One option is the adjustable-rate mortgage, or ARM.

Often referred to as a variable-rate loan because the interest rate varies over time, with adjustable-rate loans, your interest rate will periodically adjust up and down as market rates fluctuate. There is typically an introductory period where the rate will stay the same, followed by a set schedule of periodic rate change intervals.

The most common is the 5/1 adjustable-rate loan. In this type of loan, the introductory period lasts for five years (the “5” in 5/1) and the rate can change, or float, each year after that (the “1” in 5/1).

There are also periods of longer and shorter introductory periods, such as in the 10/1, 7/1, or 3/1 options.

 

With so many uncertainties in the market, why would you choose an adjustable-rate loan?

As with most things, it comes down to the almighty dollar.

Because the initial, introductory interest rate is generally lower, you can save money with an adjustable-rate loan as compared to fixed-rate options.

After the introductory period, the interest rate is set according to the market index. If the index goes down, your interest rate does, too. And a lower rate means a lower monthly payment, which is good news for you.

However, if the market index rises, so does your interest rate. And this could increase your monthly payment, making the adjustable-rate loan higher risk than other alternatives.

An adjustable-rate loan is a great option for some. Take time to consider your options and talk to a good financial advisor to make the best decision for your financial future.

Do you already have an ARM? What made you choose it? Are you glad you did?

Interested in re-publishing this article on your blog or website? Awesome! All I ask is that you send me a quick note via my website so I can give you permission. Thank you!

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Mrs Marvelous

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Amy Beardsley is passionate about personal finance and finding joy in the simple things. In 2015, she and her husband Andrew started on a journey to embrace frugality and simple living to put an end to the cycle of living paycheck-to-paycheck once and for all. Join her at www.MarvelousMrs.com where she blogs about their progress and offers advice on real money for real women.