Adjustable Rate Mortgage (ARM)
Although numerous homeowners seek fixed rate mortgages for their properties, many others want adjustable rate mortgages (ARMs) instead. This type of home loan provides more flexibility with regard to interest rates, and there is a variety of reasons that such a detail can be appealing. If you are looking for the best kind of a mortgage for your home in Winchester or Strasburg, Virginia, you might want to apply for a loan with an adjustable rate.
How Does an Adjustable Rate Mortgage Work?
During the initial period after you take out this sort of home loan, you will pay an interest rate that is fixed. Once the initial period is over, the mortgage’s rates may be periodically adjusted. When you first start exploring these kinds of loans, they may seem rather risky. Some people are daunted by the fact that the monthly payments can fluctuate when there are general changes that affect interest rates. In truth though, securing an ARM could save you much money if you select it instead of a fixed rate mortgage.
With an adjustable rate loan, the interest rate is fixed in the beginning of the term, which may last from a few to several years. The beginning fixed rate is not as much as you would pay when getting a 30-year fixed rate mortgage. Later, the interest will change occasionally. Such fluctuations are based your loan’s specific terms, in addition to a benchmark interest rate index chosen by the lender. Generally, an ARM term is 30 years.
Who Should Apply for an Adjustable Rate Mortgage?
This sort of agreement may be perfect if you know that you will be relocating relatively soon. This is because you can pay the lower interest rate for a short period of time. Then, you can sell your home before the higher interest rates go into effect. This may also be a solid option if you are nearing the height of your career. If you are certain that you will experience a significant wage increase, higher interest later in the term will not create a hardship for you. The same concept is true if you know you will be receiving other funds in the future, such as an inheritance.
The Terms of Adjustable Rate Mortgages
You should be aware of the kinds of breakdowns between the beginning and later stages of a typical ARM. The following examples are all based on an ARM with a 30-year term:
- 3/1 ARM: set interest rate for 3 years is adjusted for remaining 27 years
- 5/1 ARM: same interest rate for 5 years is adjusted for remaining 25 years
- 7/1 ARM: set interest rate for 7 years is adjusted for remaining 23 years
- 10/1 ARM: same interest rate for 10 years is adjusted for remaining 20 years
Apply for an Adjustable Rate Mortgage
If you require a home loan and higher interest payments later are not a problem, an adjustable rate mortgage could be your solution. Homespire Mortgage assists the residents of Winchester, VA, as well as people in the surrounding towns, such as Stephens City, Leesburg, and Round Hill. Feel free to give us a call, so we can help you to explore the possibilities in home loans.
Contact us today for all your mortgage and refinancing needs!