Becoming a Homeowner With an Adjustable Rate Mortgage
When you begin to take the steps to buy a home, there are a number of factors to consider, and two significant things to decide on are the type of home loan you will use to finance the purchase and the type of interest rate you will pay. Selecting an appropriate interest rate that best suits your situation can end up saving you a substantial amount of money in the long run. Opting for an adjustable rate mortgage could be an advantageous financing option for some homebuyers. If you are interested in buying a home in San Luis Obispo, California, and want to better understand your mortgage options, Central Coast Lending with Mike can help. Read on to learn more about financing a home with an adjustable rate mortgage.
What Is An Adjustable Rate Mortgage?
In an adjustable rate mortgage, (sometimes referred to as ARM), the mortgage interest will change periodically either decreasing or increasing over time for the length of the loan. In the beginning of a loan with an adjustable rate, the interest rate will remain fixed for a certain amount of time. During this fixed rate period, the initial interest rate will typically be lower than that of a fixed mortgage. When the fixed rate period ends, the interest rate will then fluctuate depending on the adjustable rate mortgage margin and other economic benchmarks. In the event that the interest rate associated with the ARM increases, the borrower will end up having to pay a higher amount, however, it is important to note that adjustable rate mortgages do have limits intended to protect a borrower from extreme interest rate cost increases.
What Are the Advantages and the Drawbacks of an Adjustable Rate Mortgage?
Adjustable rate mortgages can be very advantageous for certain borrowers, although they may not be the best option for others. One main benefit of an adjustable rate mortgage is that a borrower’s monthly mortgage payment will be lower during the beginning of the mortgage due to the lower rates of the initial fixed rate stage, saving a significant amount of money. An adjustable rate mortgage could be a great option for someone planning on moving after a few years of the home purchase because they could potentially pay off the mortgage before the interest rate increases. Some possible drawbacks to an adjustable rate mortgage are they tend to have guidelines that are complicated to understand and a borrower may potentially have to pay higher mortgage payments if interest rates rise.
Find Out If An Adjustable Rate Income Is Right For You
In some cases, an adjustable rate mortgage can offer several benefits and save a borrower a great deal of money. If you are looking to buy a home in San Luis Obispo, California, and have questions about your financing options, contact Central Coast Lending with Mike today.