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Answer You - Adjustable Rate Mortgages (ARMs) - Advantages and Disadvantages
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2.) Rates are Currently High - If rates are currently through the roof, then an ARM makes since if one is betting on dropping interest rates. By getting an ARM when rates are high, the borrower takes advantage of two things. First, if the intere
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With a brief explanation of the ARM laid out above, the following is a list of both advantages and disadvantages of financing a property using an ARM.
ADVANTAGES
1.) Saving Money - An ARM's initial interest rate is always lower than the interest rate of a similar-term fixed mortgage. If the borrower can financially afford the risk of future rate increases, then it may make since to get the ARM and save money by paying a lower interest rate. ARMs usually have a lower rate than fixed mortgages for approximately one to two years before the ARM’s rate increases propel it higher than the fixed rate (if mortgage rates are increasing).
2.) Rates are Currently High - If rates are currently through the roof, then an ARM makes since if one is betting on dropping interest rates. By getting an ARM when rates are high, the borrower takes advantage of two things. First, if the interes
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With a brief explanation of the ARM laid out above, the following is a list of both advantages and disadvantages of financing a property using an ARM.
ADVANTAGES
1.) Saving Money - An ARM's initial interest rate is always lower than the interest rate of a similar-term fixed mortgage. If the borrower can financially afford the risk of future rate increases, then it may make since to get the ARM and save money by paying a lower interest rate. ARMs usually have a lower rate than fixed mortgages for approximately one to two years before the ARM’s rate increases propel it higher than the fixed rate (if mortgage rates are increasing).
2.) Rates are Currently High - If rates are currently through the roof, then an ARM makes since if one is betting on dropping interest rates. By getting an ARM when rates are high, the borrower takes advantage of two things. First, if the intere
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With a brief explanation of the ARM laid out above, the following is a list of both advantages and disadvantages of financing a property using an ARM.
ADVANTAGES
1.) Saving Money - An ARM's initial interest rate is always lower than the interest rate of a similar-term fixed mortgage. If the borrower can financially afford the risk of future rate increases, then it may make since to get the ARM and save money by paying a lower interest rate. ARMs usually have a lower rate than fixed mortgages for approximately one to two years before the ARM’s rate increases propel it higher than the fixed rate (if mortgage rates are increasing).
2.) Rates are Currently High - If rates are currently through the roof, then an ARM makes since if one is betting on dropping interest rates. By getting an ARM when rates are high, the borrower takes advantage of two things. First, if the intere
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2.) Rates are Currently High - If rates are currently through the roof, then an ARM makes since if one is betting on dropping interest rates. By getting an ARM when rates are high, the borrower takes advantage of two things. First, if the intere
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2.) Rates are Currently High - If rates are currently through the roof, then an ARM makes since if one is betting on dropping interest rates. By getting an ARM when rates are high, the borrower takes advantage of two things. First, if the interest rate starts to fall, so will the borrower's monthly mortgage payment without them having to refinance. Secondly, the borrower profits for the first year or two because the teaser, or initial interest rate, will be lower than that of comparable fixed-rate mortgages.
3.) Assumability - Often an ARM contains assumability; the ability for the loan to be "assumed" by the new buyer of the property from the current owner of the property/loan. This is a huge benefit if interest rates are high because the ARM will shift down with the interest rates after the rates peak and start to move downward. By assuming the old owner's ARM, the new owner saves themselves from getting pinned down with a ridiculously high fixed rate mortgage that will have to be refinanced if rates drop.
4.) No need to Refinance if Rates are Dropping - Fairly self-explanatory, the owner of an ARM does not have to refinance their mortgage if interest rates are dropping. Instead, their monthly interest and overall payment will drop at each scheduled rate evaluation. If the borrower had a fixed-rate mortgage, they would have to qualify and pay to have their loan refinanced to a lower rate.
DISADVANTAGES
1.) Negative Amortization - Put very, very simple, the monthly mort
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