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Understanding An Adjustable Rate Mortgage
from: Tim HenryAn adjustable rate mortgage is exactly what the name implies; a home mortgage loan with an interest rate that gets adjusted during the life of the loan.
If you go out looking for an adjustable rate mortgage, the lender will usually have two numbers associated with the loan offer; such as 5:1, 1:1, or 3:2. These are some common numbers associated with adjustable rate mortgages, but there are others as well.
The first number indicates the number of years that the adjustable rate mortgage will operate like a fixed rate mortgage until it comes up for its first interest rate review. The second number indicates the interval at which the mortgage will be reviewed thereafter. Fox example a 5:1 adjustable rate mortgage means that the interest rate given at the time of securing the loan is guaranteed for the first five years of the mortgage, and then the rate will be reviewed and adjusted in one year intervals.
When seeking a home mortgage loan you will have a choice of adjustable rate mortgage, like we described above, or a fixed rate mortgage. Unlike an adjustable mortgage, a fixed rate mortgage will remain at the same interest rate for the entire life of the loan.
Before choosing an adjustable rate mortgage, it is important to understand that they have both advantages and disadvantages and the choice of which type of mortgage is best for you will be largely determined by the current market as well as your own situation.
Advantages of Choosing an Adjustable Rate Mortgage
By far, the greatest advantage of an adjustable rate mortgage is that is usually offered at a lower interest rate than a fixed rate mortgage loan. Because the mortgage lender does not have to guarantee the interest rate for the entire life of the loan, he or she is much freer to offer the lowest possible interest rate. Therefore, if you do not intend to hold your mortgage for more than a few years, it might be worthwhile to choose an adjustable rate mortgage and get the lowest rate possible.
There is another advantage to an adjustable rate mortgage, but it is present only in a high interest rate market. If you are securing a mortgage during a time when the mortgage rate being offered is high, by choosing a fixed rate mortgage you would be locked to that high rate for the entire life of the loan. If you choose an adjustable rate mortgage; however, when the market comes back down, your mortgage rate will come down as well.
Disadvantages of Choosing an Adjustable Rate Mortgage
The main reason that many borrowers will not even consider an adjustable rate mortgage is because of the risk level involved with this type of borrowing. With an adjustable rate mortgage, not only is there the chance that your interest rate and monthly mortgage payments will go down, but there is also the chance that they will go up.
For the homeowner who is not comfortable with the risk, and needs to know that their monthly mortgage payments will never change, an adjustable rate mortgage would not be the best choice.
About the Author
This article provided courtesy of http://www.fha-loan-guide.com
Refinancing Home Mortgage Rates News
Refinancing your home mortgage? (Reading Eagle)
Berks County, PA - Have you recently or are you thinking about refinancing your home mortgage to take advantage of lower interest rates? If so, we'd like to talk to you for a story we're now working on.
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While plunging mortgage rates have spawned a frenzy of refinancing, borrowers with larger, so-called jumbo loans are still seeing interest rates in the 7 percent range, prompting many to abandon refinancing plans altogether or resort to creative transactions.
Read more...Low Mortgage Rates Have Many Refinancing (WMTW Auburn)
Due to the low rates, mortgage companies across the country are seeing more people applying to refinance their homes, and here in southern Maine is no exception.
Read more...U.S. Banks Offer Mortgage Rates Below 5% as Fed Buys Securities (Bloomberg)
Jan. 8 (Bloomberg) -- The largest U.S. banks are starting to offer fixed home loans below 5 percent after the government began buying mortgage securities to bolster the housing market.
Read more...Tips for Refinancing Your Mortgage (NBC 29 Charlottesville)
There's a silver lining in the bad news from the real estate market. Mortgage interest rates are the lowest they've been in decades.
Read more...Low mortgage rates don’t entice buyers (Fort Worth Business Press)
As mortgage rates continue to flirt with 30-year lows, local lenders say they’re seeing a definite uptick in refinancing inquiries, but the historic low rates have done little to convince on-the-fence home buyers to re-enter the market.
Read more...U.S. Mortgage Rates Fall as Fed Buys Securities: Chart of Day (Bloomberg)
Jan. 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke may have finally found a way to drive down mortgage rates. The CHART OF THE DAY shows rates started falling after the Fed announced a $600 billion program to buy mortgage securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.
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