Why Choose an Adjustable Mortgage ARM Loan??
Post date: Mar 20, 2013 9:37:1 PM
Using convertible adjustable rate mortgages can be a great tool for you for a home purchase. A convertible adjustable rate mortgage allows you to convert your adjustable rate into a fixed rate mortgage if you choose. Finding a mortgage that works for you and your budget is essential to your financial well-being. Therefore, a loan that lets you decide later what you want to do can definitely be to your advantage. Here are a few of the benefits that you can realize with a convertible adjustable rate mortgage.
Low Interest Upfront
The great thing about an adjustable rate mortgage is the low interest rate that you get on the front end. Adjustable rate mortgages will almost always have a lower interest rate on the front end than a fixed year mortgage. If you are comparing a 5/1 adjustable rate mortgage against a 30-year fixed rate mortgage, the adjustable rate mortgage will have a lower interest rate for the first five years. Unlike a true adjustable rate mortgage, you still have the option to change your loan to a fixed rate loan later if you choose. This represents unparalleled flexibility in the lending industry.
Having an adjustable rate mortgage at the beginning of your mortgage will give you the ability to save money on your monthly payment. Your monthly payment is often the most important consideration when you are buying a house for the first time. You know exactly how much you can afford to budget and you want to keep your payment within that range. With an adjustable rate mortgage, you can do exactly that and your payment can be locked in for several years at this rate. A low payment will give you more flexibility with your budget and in other areas of your life.
Anticipation of Change
A convertible adjustable rate mortgage gives you an option that no other loan can. For a certain period of time after you take the loan, you have the option to convert your adjustable rate mortgage into a fixed rate mortgage for the remainder of the loan. For example, if you think that interest rates are on the rise, you could be paying a lot of money in an increased interest rate on your mortgage during the adjustable period. By anticipating the higher interest in advance, you can convert into a fixed rate ahead of time and save.
In order to change over to a fixed rate product, you will have to convert the loan into a new loan product. Since you signed up for a convertible loan on the front end, you do not have to pay another set of closing costs like you would if you refinanced. There is usually a nominal fee associated with the switch and the rate you get will be slightly higher than the market rate.
By starting out with an adjustable rate mortgage and converting to a fixed rate loan, you are essentially getting the best of both worlds. You are taking advantage of the lower interest rate and payment on the front end and then can convert it to a more stable rate and payment for the long term. No other type of mortgage can give you this benefit and a convertible adjustable rate mortgage loan could be exactly what you are looking for. You can save money on the front end and on the back end of the mortgage.