5 Reasons Adjustable-Rate Mortgages Are Making a Comeback
Just as vinyl records have made a comeback in the age of digital music, adjustable-rate mortgages (ARMs) are making a resurgence in the world of home financing. Often overshadowed by the popularity of traditional fixed-rate mortgages, lesser-known ARMs offer a unique, cost-saving option for borrowers. While once thought to be as risky as touching a record player’s needle to a brittle LP, this type of mortgage loan provides a safe and potentially more affordable choice for homebuyers.
Here are five reasons ARMs might be an innovative financial move for certain borrowers.
1. Home loan interest rates are on the rise. Mortgage rates more than doubled in 2022, with more hikes expected throughout 2023. Since ARMs offer qualified borrowers an initial interest rate lower than current fixed-rate mortgages, it’s possible to spend less during the early years of homeownership.
2. ARMs provide financial flexibility. These mortgage loans offer competitive rates that change at set intervals based on the benchmark interest rate and the loan’s margin. Borrowers choose the period of time that the loan will be at a fixed rate. This might be three, seven, or 10 years. After the fixed rate period, the loan adjusts to the new rate.
3. Lower ARM rates could redefine your price range. A low interest rate loan approval might do more than lower your monthly payment. It could give you access to homes at a higher price point since a lower rate often makes for more affordable payments on more expensive properties. Plus, if benchmark rates reverse course and trend downward, homeowners with ARMs can access those decreases.
4. Moving could be more profitable. Whether you plan to sell the home due to a job transfer or another reason, an ARM could put more money in your bank account. Selling the property before the end of a fixed-rate period lets you benefit from low payments while profiting from market demand, which drives higher sales prices.
5. ARMs have rate caps. A common misconception is that while ARM interest rates can fall below fixed rates, they can also rise without limits. ARM interest rates have rate caps that limit how high the rate can increase during any period. Loan terms define rate increase maximums, which can help set proper expectations regarding future payments.
ARMs are no longer a thing of the past but a valuable and modern option for home financing. Cue up your mortgage options and schedule an appointment with a SAFE Mortgage Loan Originator today!