When is an Adjustable Rate Mortgage a Good Idea?

by C.L. Haehl - Date: 2007-02-23 - Word Count: 278 Share This!

Amid constantly changing reports about the state of the economy, the future of interest rates, and the mortgage lending industry in general, it has become extremely difficult for the average American to decipher such substantial amounts of information. Extracting the high quality, accurate and reliable data from the wealth of propaganda and inaccuracy is an excruciating task. For this reason, most consumers are confused and unclear about what situations would be considered by experts as "acceptable and appropriate" to obtain an Adjustable Rate Mortgage versus a fixed loan.

Short Term Stay in The Home - Very simply, an ARM would be appropriate for those home buyers who are positive that they will not be living forever in the property they're now thinking of buying. ARM's allow buyers to pay a fixed amount for a certain number of years, and then an amount that is subject to increases on a regular schedule. Depending on the specific features of a borrower's ARM, this initial fixed payment period will usually range from one year up to five years. Payments during the fixed period are sometimes considered interest only, therefore the original principle balance remains unchanged.

Increase in Income Ahead - A second potential buyer situation that would make an ARM a good consideration is one in which the buyer is certain that his steady monthly income will be increasing prior to the end of the proposed fixed payment period. Since it is nearly inevitable that the borrower's loan payment amount will increase, a higher income will be necessary to satisfy such obligations. If the buyer does not foresee his net income permanently increasing, then the likelihood that the higher payments would be unaffordable is extreme.

Related Tags: mortgage, adjustable, home loan, arm

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