Is ARM loan right for me?
The most frequently asked questions when selecting a loan type is whether or not an Adjustable Rate Mortgage (ARM) loan is right for you? Typically the most preferred loan program is a Fixed Rate Mortgage however that does not make it the only or the right choice as selecting the best loan type depends completely upon your individual situation.
Asking yourself the below mentioned questions would help immensely:
If you plan to stay in the property for a long time and do not have any plans of selling or moving out soon then going for a fixed rate mortgage is advisable, a fixed rate mortgage would offer a peace of mind for the life of the loan as the payment would not change until the last payment has been made and here again with no prepayment penalty you could sell the property sooner if there are changes in your plan. A fixed rate mortgage offers different loan terms like a 30, 25, 20, 15 and a 10 year mortgage thus giving you the freedom to choose the right loan term based on your affordability.
This section will give you a good Idea of the mortgage process and the time frame involved. The knowledge will help you feel more comfortable as you understand and go through the steps.
An adjustable-rate mortgage (ARM) is a 30 year home loan with an initial fixed rate period, typically 3 to 10 years. The interest rate may change on an annual basis once the fixed portion of the loan expires. For example, with a 5/1 ARM loan, your interest rate would be fixed for 5 years, and could fluctuate up or down each subsequent year for the next 25 years.
ARM loans typically feature lower rates and monthly payments than comparable fixed-rate loans during the initial rate period, but rates could increase once the initial rate expires. While many home buyers prefer the security of a fixed-rate mortgage, an ARM can be a good choice too especially if you know you'll be moving within the next few years.
3/1 ARM's and 5/1 ARM's generally provide the lowest interest rates and monthly payments during the initial rate period ideal for those who don't want a long-term mortgage. 10 Year ARM's are an increasingly popular option because they combine significant savings for the initial rate period with longer protection from market-based interest-rate fluctuations.
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