Welcome to 1 Step Home Mortgage
Home Mortgage Direct Lender Article
This is a selection made from among articles on Home Mortgage Direct Lender. For a permanent link to this article, or to bookmark it for future reading, click here.
Adjustable Rate Mortgages - Understand the Benefits Compared to a Fixed Rate Mortgage
from: Carrie ReederAdjustable rate mortgages can be very tempting to home buyers, yet they carry a great deal of uncertainty. Fixed rate mortgages offer rate and payment security, but they are more expensive. It is important to weigh the pros and cons of ARMs and fixed rate mortgages before you decide which is right for you.
There are many benefits with an adjustable rate mortgage. One benefit is that they usually feature lower rates and payments early on in the loan term. Lenders can use the lower payment when qualifying borrowers, therefore borrowers can purchase larger homes than they could otherwise afford. ARM’s allow borrowers to take advantage of falling rates without refinancing. Instead of having to pay closing costs and fees, borrowers can just sit back and watch their rates fall without worrying about these extra costs. Adjustable rate mortgages can help borrowers save and invest more money. Someone who has a payment that is say $200 less with an ARM than with a fixed-rate mortgage for a couple of years can save that money and earn more off it in a higher yielding investment. This type of mortgage also offers a cheap way for borrowers who don’t plan on living in one place very long to buy a house.
There are also a few drawbacks with Adjustable rate mortgages. One drawback is that rates and payments can rise significantly over the loan period. For instance, a 6% ARM can end up at 11% in just three years if rates rise in the overall economy. A borrower’s initial low rate will adjust to a level higher than the going fixed rate level in almost every case because ARMs have initial fixed rates that are set artificially low. The first adjustment can be hard hitting because some annual caps don’t apply to the initial change. Someone with an annual cap of 2% and a lifetime cap of 6% could potentially see the rate shoot from 6% to 12% in 12 months after closing rates in the economy skyrocket. Adjustable rate mortgages can be difficult to understand.
Lenders have much more flexibility when determining margins, caps, adjustment indices and other things, so new borrowers can easily get confused or trapped by less than honest mortgage companies. One last drawback to adjustable rate mortgages is that on certain mortgages called negative amortization loans, borrowers can end up owing more money than they did at closing. This is because the payments on these loans are set so low they only cover part of the interest due. Any additional amount will get added into the principal balance.
As you can see there are many pros and cons to adjustable-rate mortgages. You must carefully consider your options before choosing a mortgage that is right for you. Stay informed of all of your mortgage options.
To view our list of most recommended mortgage lenders, visit this page: Recommended Home Mortgage Lenders
About the Author
Carrie Reeder is the owner of ABC Loan Guide. It is an informational loan website, with informative articles and the latest finance news.
Home Mortgage Direct Lender News
House prices in biggest annual fall (Channel 4)
House prices fell by 15.9% during 2008, the biggest annual drop on record, new figures showed. The average cost of a UK home dropped by a further 2.5% in December, dashing hopes that November's slide of 0.4% marked a stabilisation in the rate at which prices were falling.
Read more...FDIC Agrees to Sell IndyMac to Investor Group (Washington Post)
The federal government has agreed to sell the skeleton of IndyMac Bank, the aggressive California mortgage lender whose July failure portended the autumn crisis of the financial system, to a group of private investors.
Read more...Credit crunch shows little sign of easing (The Christian Science Monitor via Yahoo! News)
In the aftermath of a historic lending boom, a key challenge for America in 2009 is to find the right footing on debt – allowing the credit bubble to deflate while not depriving the economy of needed fuel.
Read more...Local Lenders Honored For Home Loan Partnership (The Chattanoogan)
The Community Mortgage Corporation has earned a USDA Rural Development Million Dollar lender Award for partnering with the federal agency to deliver more than $3.8 million to help families achieve the dream of home ownership.
Read more...Credit crunch shows little sign of easing (The Christian Science Monitor)
Most banks have tightened lending, choking off needed credit for some US businesses.
Read more...DATA SNAP: Nationwide: UK Dec House Prices Post Record Drop (The Forex Market)
LONDON (Dow Jones)--U.K. house prices posted their biggest drop on the year in December and are likely to come under more pressure in 2009 due to tight credit conditions and weaker demand as the economy is hit by recession, the Nationwide Building Society said Tuesday.
Read more...Breaking News | Updated: 1:43pm (Winchester Star)
Winchester — It’s been called the mortgage crisis, the housing slowdown, the economic downturn, and the credit crunch.
Read more...