In this article I've covered the main products and explained the main benefits as well as other things to think about, including negative aspects of the products. Instead of leaving the decision to your loan officer, you can make your own informed decision about which mortgage product is right for you.
ADJUSTABLE RATE MORTGAGE (ARM)
This mortgage product is also known as a Variable Rate Mortgage. There are many different types of ARM products available. The differences between them are things such as what Index the interest rate is based on, the number of times the interest rate and/or payment can change and how often the interest rate and/or payment can change. These differences should be considered when deciding on a mortgage product. In this section, I will cover the general aspects of ARMs.
Main Benefits
1. The interest rate is lower than fixed rate mortgage interest rates in the beginning of the loan, which makes for lower monthly payments for a specified amount of time.
2. If the interest rate market goes down or stays low, the interest rate stays low.
3. Most ARMs re-amortize at the time of the scheduled interest rate change. This means that your payment will be recalculated using the existing loan balance and the new interest rate. If you've reduced your principal balance (made a principal reduction), you may be able to take advantage of lower payments.
4. If you plan on selling the property within a few years, you would be able to take advantage of lower monthly payments during the short time of ownership, saving you money.
5. Many ARM products offer a conversion option. A conversion option allows for the borrower to change their mortgage from an ARM to a fully amortizing fixed rate mortgage. This option has very specific time limits and guidelines on the new interest rate, which is typically slightly above market interest rates. This option is normally less expensive than a full refinance.
Negative Aspects - Things to Think About
1. The interest rate and payment may change routinely, which
