As rising interest rates can cause a conundrum for buyers to qualify for the same loan they were preapproved for just months ago, local lender Noel Brownell says adjustable rate mortgages might be an option to help make monthly payments more affordable:
Due to the volatility of rates right now, many homebuyers are considering adjustable rate mortgages, or an “ARM.”
An adjustable rate mortgage is typically locked in for a specific period of time before adjusting. Often we see them locked for periods of 2, 5, 7 and 10 years. The longer the lock period, the higher you can expect the interest rate to be, yet they are typically 1% to 3% lower than 30-year fixed mortgages.
After the fixed period, the loan becomes adjustable and will adjust according to where interest rates are at the time. There is also a cap or max that the loan can adjust up to, and also a limit on how high it can go up each year.
Adjustable rate mortgages can be great tools to help you achieve a payment that is comfortable for you and your family. A 1% drop in interest rate on a $370,000 mortgage will drop your payment by about $253 per month!
Many borrowers use this tool to keep more cash in their pockets, knowing that they will likely refinance or sell before the fixed period ends. Since on average many homeowners refinance every three years or so, it might make sense to save money every month by purchasing with an ARM loan, versus the 30-year fixed.
For more information adjustable rate mortgages, or other questions on lending, please contact me anytime.
