With mortgage rates rising quickly post election, there has been much more attention paid to Adjustable Rate Mortgage (ARM) loans. Many people have stayed away from these types of loans in the past 10 years as the fallout from the mortgage meltdown drove the market to fixed rates. Also, when long term 30-year fixed rates are in the mid to low-threes, it doesn’t make much sense to look at an ARM loan.
However, as fixed rates move up into the mid-fours, the idea of a ARM can make sense for a few reasons, namely budget, cash flow and long term strategic planning. Most mortgage loans are in place for around seven to nine years for the average borrower. Usually the mortgage changes for a refinance or due to selling a home and buying up.
The most popular ARM loans now are those with a fixed rate period at the beginning of the loan. These are called intermediate ARMS, or step loans. These loans have an interest rate that is fixed for a period of five, seven, or 10 years. After that period, they adjust annually with the market. These loans, because of the fixed period, can be strategic instruments especially if there is a plan or a strategy in the future with that mortgage. The fact that these loans can be up to one percent lower than fixed rates also makes them attractive.
ARM loans are not for everyone, but they are worth investigating. Make sure to consult with a mortgage professional to evaluate all your options.
Jayson Stebbins is a 23-year veteran of the mortgage banking industry. Contact Jayson at (408) 825-0220 or at stebbinsmortgageteam.com.
