Find out if an ARM is the right option for you!

Do you feel like interest rates are standing in the way of you and your dream home?

With the recent uncertainty in the market, rising interest rates should absolutely be taken into consideration but should not be the end-all-be-all! Just know that there are many lending options available that may help you obtain lower interest rates, make your monthly payments more affordable and save you money over the life of your loan! 

As mentioned in our previous Keynotes (blogs), you can consider locking in your interest rate, buying down your interest rate, refinancing, and/or opting into an Adjustable-Rate Mortgage (ARM), where the initial interest rate is fixed at a lower rate for a set initial period and fluctuates as the market fluctuates over time.

When you obtain a mortgage loan, you’ll get to choose your loan terms and, in most cases, choose
between keeping the interest rate fixed for the lifetime of the loan (Fixed-Rate Mortgage/FRM) or
letting it fluctuate up and down with an ARM.

As mentioned previously, an ARM is a home loan with an interest rate that can change over time. With an ARM, the initial interest rate is fixed at a lower rate for a set initial period. This could be a one-year period, 3-year period, or any other period outlined by your lender. Once that initial interest period has expired, a new interest rate is determined based on a fluctuating benchmark that usually reflects the general state of the economy and an additional fixed margin charged by your lender.

In many cases, ARM’s come with caps that help provide homebuyers like you, protection from large monthly payment increases and interest rate swings and allow you to be eligible for lower rates in the future if rates drop.

An ARM may be a good option to consider if you are planning to own your home for a short period of time, plan to pay off the mortgage loan before the introductory rate expires, or if you feel prepared to handle any rate increase in the future.

Remember that lenders are required to outline all terms and conditions in writing before closing which would include, terms relating to an ARM. That includes information about the index and margin, how your rate will be calculated, how often it can be adjusted, whether there are any caps in place, the maximum amount that you may have to pay in interest/monthly payments, and other important considerations.

We hope the information in this blog was helpful! If you have more questions about your options for navigating today’s rising interest rates and the home buying process, check out the blogs hyperlinked above and/or contact our Neighborhood Specialist, Sandy!