Wednesday, August 12, 2015

Is an Adjustable Rate Mortgage for you?

I, just like many of you, never understood why any borrower would want to choose an ARM (Adjustable Rate Mortgage) over a Fixed Rate one. Not only does it seem like a safer bet to go with a 30 year fixed rate mortgage than a 5 or 7 year arm, but a lot of people claim it is one of the reasons for the most recent housing crisis. However last week my opinion completely changed after hearing Matt Ishbia, the CEO of UWM describe it in laymen terms. 

In no way am I saying that a borrower should choose an ARM over a 30 year fixed rate mortgage. What I am saying is that each of these options have their advantages, and depending on your situation an ARM may be the better choice for a mortgage loan.

So who would benefit from an Adjustable Rate Mortgage?

  • Some first time home buyers. For instance, a couple who plan on starting a family in a few years. A smaller home would make more sense to start out with, but they can choose to refinance or purchase a different home before the end of the fixed rate period, once they start expanding their family.

  • Borrowers who don’t plan on residing at the same home for a long period of time, or ones getting ready to retire. If retirement plans are in your near future, and you’re trying to decide on whether you’re going to downsize afterwards, relocate, having a low monthly payment for that fixed term can give you time to decide.

  • The lower monthly payment you receive with an ARM can free up money for other purchases or investments. It can also qualify you for a larger home, that you may not have been able to afford otherwise.

Let me be clear though, the guidelines on this product are set for borrowers with excellent credit. If you would like to compare what your payments would be with an ARM compared to a Fixed Rate Mortgage you can use this calculator.

You can find more detailed information on our website for ARMs.

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