Everything to Know about Adjustable Mortgage Rates
Everything to Know about Adjustable Mortgage Rates
When choosing a mortgage, you have the option between a fixed interest rate and a variable interest rate. A fixed rate mortgage guarantees the interest throughout the life of the loan. Take out one of these when interest rates are very low and you win. If you wait until interest rates are higher and your options are limited.
An adjustable rate mortgage (ARM) bases the rate off of the performance of mortgage backed securities and the rate can vary by several points over the life of the loan. If you do your homework you can save a good amount of money with an ARM.
The majority of home loans used to be fixed rate loans. These days ARMs have almost an equal share of the mortgage market. By shopping around, you can easily find a loan that will save you a substantial amount in the beginning of the mortgage repayment period. As you pay off the principal, even if the interest rate rises a little, your payments will remain the same.
ARMs are generally adjusted at set periods. The period can vary from every 6 months to every few years. If the term is longer and you secure a good initial rate, you will be in a good position for substantial savings.
If you do opt for a variable rate loan, you should stay up to date on prevailing interest rates so you won't be caught with your guard down should rates go up. Many people have lost their homes by simply not preparing for a slight rise in their interest rate; something that could have been avoided with a little planning.