Among the first things you’ll be considering when searching for a new mortgage loan will be the basic format of the loan. One common way loans are classified is by the type of interest rate you’ll be paying, and there are two options: Fixed-rate loans and adjustable rate mortgages (ARMs).
At Altius Mortgage Ogden, we’re here to help you through this decision and many others. Let’s find out what an adjustable rate mortgage is, and how you might benefit from it.
What is an ARM?
An adjustable rate mortgage refers to any mortgage where the mortgage rate is susceptible to change during the life of the loan. A fixed-rate loan will see your rate stay the same no matter what happens, but with an ARM, market and other factors can combine to change your interest rates over time.
In most cases, adjustable rate loans actually begin as fixed-rate loans – usually for a period of five to ten years. After this, though market dynamics can affect changes. Your rate can never go up more than 5 percentage points over your initial figure, and it can never rise more than 5 percent within a single adjustment period.
The primary benefit of an ARM is a lower starting interest rate. During that primary period where the interest rate remains fixed, it will be much lower than a typical fixed-rate loan, with the trade-off that it can begin to rise after this period. For people who are potentially interested in flipping a home quickly, ARMs can be perfect – if the home is flipped before the initial period ends, you can see all the benefits of a fixed-rate loan plus some of the benefits of an ARM, with little crossover.
ARM loans are also perfect for people looking to refinance a home. These low-rate loans typically offer up to 95 percent of the home’s value in refinancing, and a long grace period means the return can be excellent.
For more information on fixed-rate or adjustable rate loans, or to learn more about any of our other mortgage services, speak to the brokers at Altius Mortgage Ogden today.