BOULDER – If you’re thinking about purchasing a home, it’s important to take note of current financing trends. Following the 2008 financial crisis, homeowners enjoyed historically low interest rates. However, as the economy continues to strengthen, interest rates are rising steadily. In fact, many 30-year fixed-rate mortgages are beginning to hover around 4.64%, which is the highest they’ve been since January 2014. Since rates are projected to increase even more, many prospective homeowners are considering applying for adjustable-rate mortgages, or ARMs. If you’re curious about how an ARM may be beneficial, we share the details here.
What is an adjustable rate mortgage?
Unlike its fixed-rate counterpart, an adjustable-rate mortgage is just as the name suggests: the interest rate changes over the course of time. In most cases, the initial rate is set at a below-average level, which is appealing to young or first-time buyers. If you’re interested in securing an interest rate that’s as low as possible, it may be worth your while to inquire about an adjustable-rate mortgage. While you’ll benefit from a nearly unbeatable initial rate, it’s crucial to keep in mind that you should expect to see the interest rate rise throughout the term of the loan. In most cases, adjustable interest rates are scheduled to fluctuate after 5, 7, or 10 years. If you’re planning to sell the home before the interest rate rises, it may be wise to opt for this flexible type of mortgage loan.
Both fixed and adjustable-rate mortgages have merits and drawbacks. If you’re interested in saving money now and you expect to receive a substantial increase in income at a later date, it may be wise to opt for an ARM. Before you make your decision, be sure to shop around for rates and don’t hesitate to reach out to a lender. By taking the time to peruse a variety of interest rates, you’ll have the best chance of finding an option that works for you. You may discover that a traditional fixed-rate mortgage is your best bet, but it’s also possible to enjoy a little flexibility in your budget if you choose an ARM with an impressively low starting rate.
By Michaela Phillips. Michaela is the Vice President of Mortgage Lending at Guaranteed Rate, Inc. Contact Michaela at 303.579.5517, e-mail email@example.com or visit michaelaphillips.com. NMLS:312874.