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Adjustable Rate Mortgages
An adjustable rate mortgage can seem a little scary. After all, the interest rate you pay on an ARM can fall – or - it can rise. But there are some great reasons to get an ARM. ARMs are appealing because they offer a starting interest rate roughly one or two percentage points lower than most other loans. Say you have a hundred thousand-dollar mortgage and you live in your home ten years. Comparing a fixed rate 7 ¾% interest loan to an adjustable rate loan that averages at 6%, you would likely save more than $17,000 in interest during those ten years. But remember that key word: Adjustable. That’s the gamble you take with an ARM. Your interest rate can decrease, OR it can increase. The fluctuations are based on various economic indicators. When the economy is stable, ARMS are very popular. Many ARMS can rise no more than one or two percent a year—and no more than five or six percent over the life of the loan. Let’s figure that scenario. Say your 30 year, $100,0000 loan starts at six percent. If your rate eventually increases five percentage points, your payment rises $352 each month. But, in most instances, an ARM will save you money over time.