ARM Rates - How Can They Benefit My Mortgage Payment?
ARM rates are just adjustable rate mortgages that increase or decrease your monthly mortgage payment depending on the prime rate.
If the federal prime rate increases then your interest rate will increase and adjust your monthly payment accordingly.
There are a few types of adjustable rate mortgages including a 1 year, 3 year, 5 year and an interest only loan.
If you have a 1 year ARM that means your interest rate will be fixed for one year and then adjusted once a year after that.
The three year ARM would be fixed for 3 years and then adjust once a year after that.
The one year adjustable rate mortgage is the highest risk, so it will have the lowest interest rate to make it the most appealing.
The rates will get higher and higher as you get less risk involved.
The fixed rate mortgage would be the least amount of risk because your interest rate will be fixed for the entire loan term.
It is the easiest mortgage to get but it will probably have the highest interest.
It's up to you to measure the amount of risk you want to take on compared to the amount of reward.
You're essentially gambling with adjustable rate mortgages because you're "hoping" that the rate will stay below the fixed option that was a bit higher when you received your loan.
However, you risk paying additional money on a monthly basis if interest rates rise over the next few years.
Use a mortgage calculator to determine if you can afford the fixed rate mortgage because it is by far the best choice available.
The calculators will tell you your monthly payment based on the current interest rate and loan term.
That way you can play around with them to figure out your best mortgage option available for your situation.
Sometimes an ARM would be the correct choice but I don't think it is in this economy.
The interest rates are so low right now that they can't go too much lower and the risk of them going up would be too much for anyone to take.
ARM's can be smart for those that buy properties to fix them and resell them.
They will pay a lower rate for the first year and, more often than not, they will sell the property before it has the change of increasing.
I recommend using an interest calculator to figure out all of your monthly mortgage payment options and weigh them against each other.
If the federal prime rate increases then your interest rate will increase and adjust your monthly payment accordingly.
There are a few types of adjustable rate mortgages including a 1 year, 3 year, 5 year and an interest only loan.
If you have a 1 year ARM that means your interest rate will be fixed for one year and then adjusted once a year after that.
The three year ARM would be fixed for 3 years and then adjust once a year after that.
The one year adjustable rate mortgage is the highest risk, so it will have the lowest interest rate to make it the most appealing.
The rates will get higher and higher as you get less risk involved.
The fixed rate mortgage would be the least amount of risk because your interest rate will be fixed for the entire loan term.
It is the easiest mortgage to get but it will probably have the highest interest.
It's up to you to measure the amount of risk you want to take on compared to the amount of reward.
You're essentially gambling with adjustable rate mortgages because you're "hoping" that the rate will stay below the fixed option that was a bit higher when you received your loan.
However, you risk paying additional money on a monthly basis if interest rates rise over the next few years.
Use a mortgage calculator to determine if you can afford the fixed rate mortgage because it is by far the best choice available.
The calculators will tell you your monthly payment based on the current interest rate and loan term.
That way you can play around with them to figure out your best mortgage option available for your situation.
Sometimes an ARM would be the correct choice but I don't think it is in this economy.
The interest rates are so low right now that they can't go too much lower and the risk of them going up would be too much for anyone to take.
ARM's can be smart for those that buy properties to fix them and resell them.
They will pay a lower rate for the first year and, more often than not, they will sell the property before it has the change of increasing.
I recommend using an interest calculator to figure out all of your monthly mortgage payment options and weigh them against each other.