Adjustable Rate Mortgages
Adjustable Rate Mortgages: Is it the right time for an adjustable rate mortgage?
When it comes to capitalizing on your real estate investment, many people neglect how important the home mortgage is. After all, most people when they are looking to buy real estate tend to focus on location and the home’s quality. With all of the focus on maximizing a home’s market value, homebuyers forget that they can save a lot of money by choosing the right kind of mortgage. While fixed rate mortgages tend to be popular for most homeowners because they offer stable monthly mortgage payments, one of the best real estate investments that you can make is picking up an adjustable rate mortgage.
An adjustable rate mortgage (ARM) refers to a home mortgage loan in which the mortgage interest rates will fluctuate with the real estate market interest rate. It is generally a high risk – high reward situation and its practicality will depend a lot on real estate conditions. For example, if the local real estate market interest rates were to decrease then you will benefit with lower mortgage rates. Conversely, if the local real estate market interest rates were to increase then you will have to pay higher mortgage rates. For many homeowners, they are a bit afraid of the instability of an adjustable rate mortgage. It is important for you to determine if this is the right strategy for you.
Remember that most financial experts recommend that your mortgage payments and other housing costs should not exceed forty percent of your monthly income. Therefore, if you are not in a financial situation where you are able to handle a fluctuating mortgage payment, then you shouldn’t consider obtaining an adjustable rate mortgage.
However, if you are interested in obtaining an adjustable rate mortgage, then you may want to read on. One of the biggest attractions of the adjustable rate mortgage is that home mortgage loan lenders tend to offer adjustable rate mortgages with beginning interest rates that are usually two to three points lower than a fixed rate mortgage. While many homeowners think that adjustable rate mortgages will fluctuate from month to month, generally an adjustable rate mortgage will begin with that low interest rate fixed for the first three to seven years of the mortgage. From there, the mortgage rate can change only once a year for the remaining years of your mortgage term. For many individuals who know that they aren’t going to be staying in their home for a long period of time, an adjustable rate mortgage may be your best option.
Make sure that you go to a number of home mortgage loan lenders that offer adjustable rate mortgages. Through careful financial planning and finding an adjustable rate mortgage with a favorable beginning interest rate, you may be able maximize on your real estate investment!