ADJUSTABLE RATE MORTGAGE
Is An Adjustable Rate Mortgage Right For You?
Many people prefer adjustable rate mortgages for a variety of reasons:
They have changing interest rates, which means that if you buy at a time when New York and New Jersey mortgage rates are high, your monthly payment can decrease.
Generally, adjustable rate mortgages are lower than fixed rates and can offer instant savings, to compensate for the risk that they might increase at a future point in time.
Adjustable mortgage rates offer wide flexibility in payment types and terms than with fixed rate mortgages.
Adjustable mortgage rates aren’t for everyone. There’s always the risk inherent of changing interest rates – your payments could go up, even if interest rates don’t. Comparing risks and benefits of adjustable mortgage rates with a professional consultation from a reputable lender is key.
How Does An Adjustable Mortgage Rate Work?
An adjustable mortgage rate is different from a fixed rate mortgage because adjustable interest rates change from time to time while the fixed rates are locked for the duration of your loan (unless, you – the borrower – chooses to refinance). These mortgage rate fluctuations are typically tied to an index.
A professional can help you navigate different payment options, indexes, and margins so you can compare a variety of ARMs or an ARM with a fixed rate mortgage and how each would affect your monthly payment. An adjustable mortgage rate offers lower mortgage rates along with flexible payment options in return for the risk that payments may increase in the future, so keep in mind that you can never completely know the whole picture when comparing the two.
What Is An ARM Index?
An index is a measure of interest rates, to which the lender adds a margin based on the terms of the loan (the margin is pretty much constant throughout the duration of the loan). The changes to monthly payment are limited by the “cap,” which controls the risk of wide fluctuations in interest rates.