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Are Adjustable Rate Mortgages Right for Me Under Current Market Conditions?



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By : marco benavides    99 or more times read
ARMs or adjustable rate mortgages are simply mortgages that have a varying interest rate in accordance with certain market conditions. These types of loans will usually start with a lower monthly payment and interest rate than a fixed rate mortgage loan, but try to keep the following in mind:

Even if interest rates do not change, your monthly payments could still go up. They could also go up if interest rates go up, which why they are called adjustable rate loans.

You should also not expect your monthly payment to go down by much, if at all, even if interest rates go down. You need to consult your lender and find out how much interest rates have to go down in order for your monthly payment to go down.

Unfortunately, ARMs are set up in such a way that you may end up owing more than what you borrowed, and it might make no difference whether you have made all your payments on time. Therefore, it is extremely important to consult with your lender and ask plenty of questions before you settle on an adjustable rate.

If you opt for an adjustable rate loan, you will probably have to pay a penalty if you pay your mortgage off early in order to avoid paying higher monthly payments. Once again, find out all you can about the terms of your loan, penalties, and anything else you can think of.

You also need to consider whether you are going to earn enough money to cover the payments if the they should go up. Many people opt for ARMs because of the lower initial monthly payments, but they do not really look at the fact that payments could go up considerably, so their incomes must be able to keep pace with payment increases.

People who plan to buy a home to settle in and raise children should generally opt for a fixed rate loan. It is a safer bet over the long run because you can lock in the interest rate. On the other hand, if you are only planning to be in a home for a short time, then you need to consider an ARM.

People who are going to live in a place less than five years will not be as affected by a rise in interest rates in the short term. However, the way that market conditions are right now, it is hard to see interest rates remaining so low.

If you are going to get into an adjustable rate mortgage, you really need to be forward thinking and pay attention to the index that your ARM is based on. By the way, this is something else that you need to ask your lender because you need find out the index that will be used, and you need to know how it has fluctuated in the past.

If all of this is too much for you, then make sure that you consult a real estate expert who can guide you throughout the process. There are very competent real estate agents who will give you all the assistance that is necessary for you to make the right choices.
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