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Adjustable Rate Mortgages - The PROS & CONS

Now that you know what an ARM is and how it works, you may be wondering what the advantages and disadvantages are. So let’s explore that issue.

Offering adjustable rates allows lenders to transfer part of the interest rate risk from themselves to the borrower. If you get a fixed rate mortgage and the interest rate then goes up, it costs the lender money. However, if you have an adjustable rate mortgage, as the interest rate goes up, so does your payment, thus compensating the lender. Adjustable rate mortgages are particularly useful when unpredictable interest rates make fixed rate loans hard to get.

One of the main advantages of an adjustable rate mortgage is that the initial interest rate is lower than that of a fixed rate mortgage. A lower rate means lower payments, which may help you qualify for a larger loan. This is an important detail if you expect your future earnings to rise. In this case, the ARM will allow you to qualify for a larger loan amount earlier rather than later.

However, this information should only be used with care. If you use an ARM to qualify for a larger loan amount than a fixed rate would allow you and the interest rate then rises drastically or your income doesn’t rise, you may not be able to afford the larger monthly payments, thus causing you to default on your loan.

A situation in which an adjustable rate mortgage makes sense would be if you are only going to keep the house for a short period of time. If you are only planning to own your house for only a few years, the risk of the interest rate rising goes down. This means that you will get a better rate with an ARM, making it a good choice. However, if you plan on staying in your home for a long period of time, a fixed rate may be a better option.

The lesson here is to have a plan. Know what your goals are in purchasing a home and plan for all eventualities. Do your research when shopping for an ARM and consider the worst-case scenario.

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Pine Point Realty
1226 Lincoln Street
Rhinelander, WI 54501
Phone: 715-365-6000
 

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"When Our bank turned us down for our home loan, we felt that all hope was lost, but Carol Shattuck and Kathy Dolch came through with another lender that was able to get us into our first home." Terry H.
I had met with Kathy a month earlier to discuss my situation and possible sale of my home. Once I knew for sure that I was going to list, I was comfortable with Kathy's input, so I signed up with Pine Point. Julie H.
Kathy and her team go above and beyond to make sure your experience is amazing. Kathy was amazing and made sure we knew what we were looking at, and we should know, we have been working with her for 2 years to find the perfect home. M. Wilmot
As a first-time home owner, Kathy was excellent to work with! The home I purchased was a foreclosure and there were lots of hoops to jump through, but Kathy was very patient and optimistic. Deb H.
Ashlei Highfill was so patient and kind. She always answered every question we had right away. She really showed us some great properties and ultimately found us our perfect starter home. Would highly recommend Ashlei Highfill to anyone looking to purchase a home. Definitely will not be disappointed! Laina Miller , Rhinelander
We moved from out of state and were unable to look at homes in person and Ashlei went out of her way to look at homes for us, she took many pictures and was extremely honest with us, which was what I valued most. She was very punctual at getting back to me, and made my first home purchase an enjoyable one. Kempkens - Rhinelander
I trust Pine Point. Sharon worked well with us and kept us informed. Virginia Taft
My experience with Ashlei was beyond excellent. Her excellence in keeping me informed at all times was very important to me and she went above and beyond my expectations. She is most professional and advised me of her opinions when asked. I would definitely recommend Ashlei to friends, family, or associates who are in the market for a real estate professional. David Dohe
We want to thank and express our appreciation to Ashlei and Team Dolch for all the help and support through the process of buying our home. We've made new friends at Pine Point Realty!! C. McDonald
Ashlei was the greatest!! I could not have asked for a better, more genuine person to help us with our purchase. You have a wonderful agent on your hands! Al & Kathy Reinke
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