Adjustable Rate Mortgages: Are They a Good Fit?

Adjustable-rate mortgages are often an attractive option to their fixed-rate counterparts, as the rates are often significantly lower.

But are adjustable-rate mortgages a good fit for you?

For some period of time after you take out an adjustable-rate mortgage, it has a fixed rate.

After that time period has expired, the rate fluctuates based on an agreed-upon index.

The time period is often anywhere from one to seven years.

In the past, part of the attraction of adjustable-rate mortgages was that the initial qualifying rate was low.

This often allowed homebuyers to purchase a home that would have been out of reach had the qualifying rate been higher.

This was great in the first part of the loan.

However, as payments went up and incomes either stayed the same or decreased, challenges for borrowers arose.

This clearly came to light during the recent mortgage meltdown.

To address this situation, mortgage guidelines were updated to require that people qualify for their adjustable-rate mortgage at the highest rate that it could ever go.

Even in light of the fact that the initial rate is lower in the adjustable-rate mortgage, the stable payment over the life of the loan makes the fixed-rate an attractive option.

Adjustable-rate mortgages do have their merits, though.

For example, adjustable-rate mortgages are ideal if you’re going to be in the property for a few years and then sell it before any rate adjustment takes place.

Want more details about adjustable-rate mortgages?

It is best to contact a mortgage professional for advice on such options.