Is an Adjustable Rate Mortgage Worth the Risk?
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There are inherent risks involved in an Adjustable Rate Mortgage (ARM) vs. the relative predictability of a Fixed Rate Mortgage. So why would a homebuyer consider an ARM? Here are three situations where a homebuyer should give an ARM a closer look:
1. Planning to Sell Quickly
The main risk of an ARM is at the end of an introductory period when the rate adjusts. However, if you plan on using those savings to fund home improvements and sell before the introductory period is up to upgrade to a better property, an ARM may be a good financial decision.
2. You Need to Move Again
There are many reasons why someone would need to suddenly relocate. Perhaps you expect to move soon for work, or maybe there's a need to be closer to family. If a homeowner sells their house before the first rate adjustment, they could save a great deal of money on interest over a Fixed Rate Mortgage.
3. Low Monthly Payments
This is the most popular reason to seek out an ARM. If you are confident that you will be making as much or even more money in the future, you should consider getting a monthly payment that you can afford now and begin building equity.
A Fixed Rate Mortgage is usually the best home-buying strategy because long-term planning benefits from stability and predictability. But there are situations where an ARM makes more financial sense. Contact a lender to find out which loan is best for you.