There are many kinds of mortgage loans available for borrowers. The most popular one in the country is the fixed rate mortgage, which gives borrowers a fixed interest rate over the course of the loan term regardless of what happens to the market rate.
There is another popular option called an adjustable rate mortgage. Adjustable rate mortgages are mortgage loans whose interest rates regularly adjust depending on a variety of indices. As a consequence, the borrower’s monthly payments may also change as time passes by. This adjusted rate is a way to transfer risk from the lender to the borrower. Unlike with fixed rate mortgages, the borrower has the potential to benefit if the interest rate falls, but has the risk of losing out if the interest rate actually rises.
So if this is the case, why should anyone get an adjustable rate mortgage?
Most people will immediately choose a fixed rate mortgage over an adjustable one because of its consistency. But a good thing to consider is that this is an ideal mortgage for those who plan to move within a relatively lower period of time, because the fixed rate of interest during the first 3, 5, or 7 years is usually lower than the rate on fixed rate mortgages.
People who wish to move before the time that the interest rate may fluctuate up or down can find ARM mortgage ideal for them.
ARM mortgage can come in the following terms. 10/1 ARM mortgage, 7/1 ARM mortgage, 5/1 ARM mortgage, 3/1 ARM mortgage, & 1/1 ARM mortgage.
The meaning of the numbers is this. The first number signifies the number of years that the interest rate will be fixed, and the 2nd number means how often (in years) the interest rate will adjust when the fixed-rate period is up.
As a general rule, the fewer amount of years that the rates are fixed, the lower the interest rate will be until it fluctuates. So when deciding which adjustable rate mortgage to get, consider the number of years the interest rate will be fixed, the potential amount that the rate could increase when it is due, and any other terms the lender will have, before taking your pick.
There are other popular mortgage loans available besides adjustable rate mortgage. All of them have their own advantages and disadvantages, depending on the situation. Before deciding which one is best for you, it is good to take a look at them all first. Speak to a lender, or do more research online. For example, San Diego mortgage loan shoppers can find a great resource at MySanDiegoMortgage.com.
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