Are you thinking about an adjustable rate mortgage?

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Should you consider an adjustable rate mortgage (ARM)? As fixed rates increase, home buyers start to think about adjustable rates. Some people are scared away after the housing crisis in the early 2000’s but for some home owners, an adjustable rate may work! You need to ask yourself some questions to make an informed decision.

The first question is how long do you plan to keep this house – or maybe just this mortgage? If the answer is 5-7 years, you may want to consider an ARM. Maybe you know you are going to be transferred or maybe you are buying a starter home and know you will need something bigger. Maybe you know you are going to be downsizing in a few years. Most people do not stay in their home long enough to pay off the mortgage – but you never know!

An adjustable rate is fixed for a number of years – usually 5, 7 or 10 years and then they become an adjustable rate. So if you know you are moving in 5-7 years, maybe a 7 year ARM may work for you. It could save you over .50% in rate- maybe more. Check with your loan officer and see what the rate is and if it makes sense.

Are you a first time homebuyer and you have 5% down – or more? Maybe an ARM makes sense – chances are you will be moving in a few years – you could save money with an ARM -but make sure it makes sense for you.

Are you buying a jumbo home – in other words, will your mortgage be over $453,100? If so, an ARM may make sense for you. For many people in the jumbo market, ARM’s make a lot of sense. There can be a big swing in interest rates from an adjustable rate to a fixed rate with jumbo loans. For some, an adjustable rate may be the best way to qualify for a jumbo loan.

Talk to your loan officer and decide whether it makes sense to look at an ARM. It may save you some money or it may not be worth it – but you won’t know if you don’t ask!