Why Adjustable Rate Mortgages (ARMs) are GREAT
Loan Options!
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If you're reading this report, you are
trying to decide if an ARM is right for you. The common
perception of adjustable rate mortgages among those new to
the idea is that your rate adjusts and you end up paying
higher rates and higher payments and that it's very risky.
While it is "possible" that your rate may go up (at least
temporarily), an ARM is often the best loan option, and this
report will reveal some of that thinking.
ARMs typically come as 2, 3, or 5 year
terms. This means that your rate and payment is FIXED for
that 2-5 year term, only becoming adjustable with the market
after that. Your payments are still based on a 30 year
mortgage, but with ARMs, you'll get a lower interest rate
versus a 30 year fixed loan. Lower rate means lower
payments.
Given that the average American doesn't
stay in the same house, much less the same loan, for more
than 5 years, for most people, a 3-5 year ARM is the perfect
fit. It gives them a fixed rate for the period they'll hold
that loan, and in doing an ARM, they get a lower rate and
therefore a lower payment. Over 3-5 years, the monthly
payment savings could total in the thousands!
But, what if you end up staying in that
house longer than the fixed period? Well, you could
refinance into another ARM with a fixed period, or you could
ride out the adjustable period. Which is best? Let's discuss
it.
Let's say in doing a 5 year ARM, you end
up saving $5000 over that period versus the rate and payment
you'd get with a 30 year fixed loan. 1) That $5000 could be
used to pay down/off credit debt, which saves you interest;
2) That $5000 could be invested, which makes you money; or
3) That $5000 goes towards a savings fund, which provides
you with more financial stability. All positive things.
If you do end up in the house longer than
expected and you're worried about adjustable rates, the
savings over that fixed period more than make up for any
closing costs for refinancing, so you could refinance into
another fixed period. Now, let's assume you stay in the
adjustable period after 5 years. If your ARM rate is .5%
lower than what a 30 year fixed rate would have been, then
the rate would have to average a full 1% higher than your
initial ARM rate for 5 full years (years 6-10) in order to
"give back" the savings from years 1-5. If your budget will
allow for occassional payment fluctuations, staying in an
adjustable period may make sense. If not, then refinance.
And, if you know you'll not be in that same place longer
than 5 years, no worries...you'll always be in a fixed loan.
Furthermore, the report on How Interest
Only Can Make You Money is a must read along with this
report. Those who understand and feel comfortable with the
ideas of an ARM will want to read our thoughts on interest
only. The two combined can save you tons of money, which
allow you to qualify for more, or provide you with a lot of
extra cash to pay off debts or invest.
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