After the housing market burst many borrowers panicked and tried to convert their adjustable rate mortgage (ARM) into a fixed rate mortgage loan. As home values decreased this was not an option for millions of Americans, prompting the government to come out with the HARP loan solution. This program has enabled families throughout the country to fix their interest rate even if they owed more than their home is worth. In the race to lock in interest rates many people have forgotten why an ARM loan can be beneficial in the first place.
Adjustable rate mortgages aren’t bad. They just aren’t for everyone. They type of mortgage loan you secure should be based upon your current and future financial and housing goals. Fixed rate mortgages are ideal for people that are in their permanent home or wanting to pay it off in order to retire. For the rest of Americans, an ARM loan may be a better solution.
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Reasons Why an Adjustable Rate Mortgage is Not for You
• This is your “starter home”.
• You are going to remodel in the next five years.
• You will need to upgrade or downsize within the next five years.
• You are currently going back to school and will be employed full time in the next several years.
• You are currently paying for your child to go to college and need extra money.
If you or your spouse is back in school your income levels have probably dropped and will go up significantly once they have graduated and found work. This can create a situation where you need additional money now but can afford higher payments later. Adjustable rate mortgages have a lower monthly mortgage payment than a fixed rate loan, making them easier on your pocket book. The key to remember is that when you are ready to fix the interest rate there is no way to predict how high that rate will be. You need to be certain that your future, higher, earnings can withstand the increase.
If you know you will have to move in the next five years due to being in the military, having a growing family, or your children leaving the nest, fixing your interest rate doesn’t make a lot of sense. There isn’t a compelling reason to have a higher fixed interest rate and make a larger monthly payment when you plan on moving anyway. The same holds true for if you are remodeling and going to refinance after your home has gained in value.
Fixed rate mortgage loans offer peace and security for families that want to know their mortgage payment will stay the same, every month, no matter what. There is a set payoff date so you can build your financial future around that information. This type of loan can be a fantastic long term solution but you need to know which type of borrower you are. Is your life settled down where you will stay in that home or are you in transition? Make sure that your home loan matches your goals. For more information contact an experienced mortgage lender today.
