Adjustable Rate Mortgages (ARMs)

Adjustable Rate Mortgages (ARMs) may be the solution in a rising rate environment

When interests rates go up, affordability goes down…meaning home buyers either need to downsize their property expectations OR find ways to boost their affordability.

But this is why the Adjustable Rate Mortgage (ARM) can be a great option for borrowers especially in a rising interest rate market!

Don’t let those PSAs from the 2008 financial crisis scare you. For home buyers of a certain age, just the words “adjustable rate” invoke memories of surviving off of cases of cup-a-soups (with an extra large splash of Tapatio in our case). But Adjustable Rate Mortgages aren’t all evil. Like most villains they’re actually widely mostly misunderstood (remember Wicked?!).

For example, did you know that ARMs have a fixed interest rate period? Yes the initial portion of the Adjustable Rate Mortgages has a fixed rate and it is usually used in the actual loan program’s name. For example: A “7 Year ARM” is a mortgage that has a fixed rate period of seven years and then becomes adjustable for the remainder. The reason why an ARM boosts your affordability is that this initial period’s rate is typically lower than the comparable 30 Year Fixed Rate.

Btw the 7 Year ARM is my favorite adjustable rate mortgage. Why? Because, on average, people keep their home loa for 5 years. In that time usually they’re increasing their equity and their income and credit are (hopefully)increasing too. Plus that’s a long stretch of time for interest rates to potentially come down. So there’s a very high chance that within the seven year period, you’ll get a shot at getting into another mortgage with more favorable terms.

So don’t fear these ARMs. Instead give us a call and we’ll talk you through whether it makes sense for your scenario.