Adjustable Rate Mortgages: When They Are the Right Mortgage
Most of us are familiar with tradition rate mortgages. We borrow a fixed amount of money for 15 to 30 y ears and we agree to pay it back at a given interest rate over the life of the loan. Our payments are the same amount every month, whether it is for 5 years or 30 years. For the majority of homeowners out there this is the most ideal type of mortgage as it has no surprises or sudden increases in monthly payments. However, for some home buyers, an adjustable rate mortgage may very well be the better financial tool.
An Adjustable Rate Mortgage (ARM) is one that can go up or down over time depending on market conditions. Some ARM’s adjust once, while others can adjust several times over the life of the loan. The main purpose behind an ARM was to let people buy more house then they might be able to afford now assuming that as the years went by their earning power would be greater and thus when the mortgage rate adjusted they could afford the new payment. Unfortunately, many people don’t understand how ARM’s work and are often unprepared for when the rate adjustments take...
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