Deciding on a mortgage isn’t always easy. It’s a big decision and there’s a lot of money involved. For most people, the purchase of a home will be the largest financial purchase of their life, so it’s important to make sure you’re choosing the right mortgage. An adjustable-rate mortgage (ARM) is one home lending option that many people aren’t familiar with. Here’s what you need to know about ARMs.
What is an Adjustable Rate Mortgage?
There are two primary types of mortgages: a fixed-rate mortgage and an adjustable-rate mortgage. A fixed-rate mortgage has a stationary interest rate that does not go up or down during the entire life of the loan. The interest rate you started with will be the same interest rate you end with, despite the current market interest rate at the time. An adjustable-rate mortgage has an interest rate that fluctuates. Typically, an ARM will start out with a lower interest rate than a fixed rate mortgage, but over time will reflect market interest rates after a set period of time.
An adjustable-rate mortgage is a great option for many people. A lower starting interest rate may be a good choice for homebuyers who plan to pay off their mortgage or relocate before the interest rate rises. ARMs do come with annual caps, so you won’t be paying above a certain interest rate in a given year, guaranteed. They are also capped so that the interest rate can only rise so much during the life of the loan.
In January of 2014, the Consumer Financial Protection Bureau announced an “ability to repay” rule, which requires mortgage servicers to consider more than the starting interest rate when calculating whether or not someone can afford the ARM. While ARMs often still have lower credit score requirements and down payments than fixed rate mortgages, rising payments after the introductory period could prove impossible to pay several years down the line. The most important thing to consider is if you will be able to afford a potentially higher interest rate after your introductory period is over.
Reach out to Silver Leaf Mortgage today
Are you considering an adjustable-rate mortgage? Speak with a Senior Loan Officer today to learn more about your options, and if an ARM is right for you. At Silver Leaf Mortgage, we are a Denver mortgage company with 100 years of combined experience in the lending industry. We know how exciting and overwhelming a new home purchase can be, and we’re committed to guiding you every step of the way. Call now at (720) 458-4036.