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Adjustable Rate Mortgages - The PROS & CONS

Now that you know what an ARM is and how it works, you may be wondering what the advantages and disadvantages are. So let’s explore that issue.

Offering adjustable rates allows lenders to transfer part of the interest rate risk from themselves to the borrower. If you get a fixed rate mortgage and the interest rate then goes up, it costs the lender money. However, if you have an adjustable rate mortgage, as the interest rate goes up, so does your payment, thus compensating the lender. Adjustable rate mortgages are particularly useful when unpredictable interest rates make fixed rate loans hard to get.

One of the main advantages of an adjustable rate mortgage is that the initial interest rate is lower than that of a fixed rate mortgage. A lower rate means lower payments, which may help you qualify for a larger loan. This is an important detail if you expect your future earnings to rise. In this case, the ARM will allow you to qualify for a larger loan amount earlier rather than later.

However, this information should only be used with care. If you use an ARM to qualify for a larger loan amount than a fixed rate would allow you and the interest rate then rises drastically or your income doesn’t rise, you may not be able to afford the larger monthly payments, thus causing you to default on your loan.

A situation in which an adjustable rate mortgage makes sense would be if you are only going to keep the house for a short period of time. If you are only planning to own your house for only a few years, the risk of the interest rate rising goes down. This means that you will get a better rate with an ARM, making it a good choice. However, if you plan on staying in your home for a long period of time, a fixed rate may be a better option.

The lesson here is to have a plan. Know what your goals are in purchasing a home and plan for all eventualities. Do your research when shopping for an ARM and consider the worst-case scenario.

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Faye Hunter, Broker
Century 21, The Hunter Group

114 South Main Street
Statesboro, GA 30458-1475
Phone: 912-489-5750
Email: fayehunter@realtor.com

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I was very pleased with Jessica in every way. After our first meeting she started right away with selling my mom's house. I didn't have to worry about one thing. Jessica is an excellent agent. She is very personable but professional. I live out-of-state but she kept me well informed. She has a great personality. Jessica showed that she has morals and values which are valuable traits to me. I would definitely recommend her to anyone. The sale was very quick. You are very fortunate to have Jessica working for you. The process from beginning to end went very smoothly. Thanks to Jessica. Vicky Click,Southport, NC April 27, 2018
When you have a very patient friend who is also your real estate agent, you are doubly blessed! This entire process of prepping to sell and selling Mom's house was made much easier thanks to your guidance and patience - again, the "p" word. From letting me know what to expect, to determining what "fair" means, and all the other minute in between. I relied on your experience and advice. You did not once let me down. Thanks for not only being the trusted consummate professional, but for being a great family friend. Best always, Marianna Marianna Voiselle, February 6, 2018
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