When you’re refinancing, an Adjustable Rate Mortgage can seem tempting, especially in the short term, and when rates are low. An ARM, an interest rate that adjusts with the market, is like playing the stock market. When the economy is in great shape, you’re paying lower rates and everything is gravy. However, there are hidden dangers to an ARM that make them less appealing as a long term investment.
When the economy turns, your rates and payments can rise significantly. Depending on the type of ARM that you sign up for, a 3% mortgage rate can turn into an 8% with a sharp rate increase over 3 years. You can also see a GIGANTIC jump in the first adjustment. The first adjustment in many ARM agreements isn’t capped, meaning that even if you have an annual cap of 2% and a lifetime of 6%, the first year could see a jump from 3% to 9% after the closing if the rates skyrocket.
I know there are a lot of “ifs” involved, but you need to know the facts before deciding to make one of the biggest investments of your life. With a fixed-rate mortgage, you get cost certainty. Right now, with rates low and home prices steady, you can’t go wrong with ANY refinance. You have to take advantage of rates now to save money. However, thinking towards the future, knowing what your payment will be every month will help you budget. You’ll never have to worry about your mortgage rate skyrocketing with a fixed rate mortgage. With an ARM, you are at the whims of the market.
What it boils down to is stability vs. possibility. If you want to have a shot at paying lower interest rates, an ARM could work for you. If you want a stable payment that you never have to worry about changing, a fixed-rate mortgage is the right call.
To take advantage of these lower rates today, call The Home Loan Expert, Ryan Kelley at (314) 781-9700 or apply online at www.thehomeloanexpert.com now. Nobody makes it easier to refinance to a fixed-rate mortgage in St. Louis than The Home Loan Expert, Ryan Kelley.