If you're in the market for a new home, one fundamental choice you will have to make is whether to apply for a fixed or adjustable-rate mortgage (ARM). In some cases, an adjustable-rate mortgage may be your best option, but they are not the answer for everyone. Adjustable rate mortgages can be risky for some people, so it's important to understand both the pros and cons of this loan type before making your decision.
Perhaps one of the best things about ARMs is that they typically have a lower starting interest rate than fixed-rate mortgages. For some customers, this means that it is easier for them to qualify for a loan. ARMs are beneficial for customers who:
There are a number of different types of adjustable rate mortgages, and they are each tied to specific interest rate indexes. While an ARM may offer customers some flexibility in terms of income and debt ratios, there are also downsides. Some of the cons of using an ARM to finance your mortgage include:
If you're searching for the right mortgage, you should discuss all of your options with your mortgage banker. There are specific instances when an ARM may be the best option, and there are other times, such as if you plan to stay in your home for more than five to seven years, where a fixed-rate mortgage may be your better choice. Get more information in our downloadable below that contains questions you can ask yourself to determine which mortgage type is best for you.