If you’re in the market for a home and you’re looking for the best way to finance it, an Adjustable Rate Mortgage (ARM) may be worth considering. While it’s true that the risk of a higher interest rate down the line with this type of mortgage is greater than that of a fixed rate mortgage, there are several clear advantages to choosing an ARM that should be considered before making a decision. By weighing out the pros and cons of each option, you’ll likely come away with the best mortgage plan for your needs.
The most obvious benefit to an ARM is that it typically offers very low introductory rates, with lenders often willing to offer rates that are considerably lower than those of a fixed rate mortgage. This makes it an attractive option for anyone who is looking to purchase a home with a limited budget. With an ARM, buyers may be able to afford a home that would otherwise be out of their price range.
In addition to the lower rate, an ARM also offers borrowers the benefit of a greater degree of flexibility. By opting for a shorter-term ARM, borrowers can save even more on up-front costs by cutting down on the amount of interest that must be paid over the loan’s lifetime. Furthermore, if you are willing to take on the risk of potential rate increases in the future, you can choose a longer-term ARM that offers lower payments throughout the duration of the loan, allowing you to free up more of your monthly cash flow.
Lastly, an ARM has the potential to help you build equity faster. Because of the lower principal payments associated with this type of loan, more of your payment can go toward paying down the principal balance, thus increasing your equity faster.
Ultimately, choosing between an ARM and a fixed rate mortgage is a personal decision. Those who plan to stay in their home for just a few years may find that an ARM is the better option, while those who plan to remain in their home for a longer period of time may be better off with a fixed rate loan. By taking the time to compare both mortgage options, borrowers can rest assured that they made the decision that is best suited for their home financing needs.