Traditionally you’ve may been told that Adjustable Rate Mortgage (ARMs) are something you should steer clear from. Though often this could be the case, every mortgage is unique to the home owners goals.
We’ve helped many home owners in South Florida save thousands of dollars with an Adjustable Rate Mortgage and we could potentially do the same for you through purchasing or re financing.
If you are still skeptical we’ll outline the pros and cons of adjustable rate mortgages + give you some insight if it may be the best and most economical option for you.
Before we go into the pros and cons we’ll define what an Adjustable Rate Mortgage is and some of the different ARMs available to South Florida Real Estate home buyers.
What is an Adjustable Rate Mortgage?
Though often riskier because your mortgage payments can increase or decrease, yet choosing an ARM over a fixed-rate mortgage could save you tens of thousands of dollars; depending on your situation.
The 4 Pros of Adjustable Rate Mortgages
1. Most people only stay 5 – 7 years in their homes
Its historically proven that the average homeowner stays in their home for 5-7 years, before they sell or refinance. You or your spouse might get relocated for work or maybe you get tired of living in the current neighborhood, whatever the reason may be; life happens and its good to anticipate change and be prepared.
2. Save up for an investment property down payment
Make your money work for you by owning rental properties. Fannie Mae allows for up to 10 investment properties per person, with conventional rates. Meaning you can put as little as 15% down for an investment property and given the low conventional rate (which translates into lower monthly payments), you can make money every month, while covering your monthly PITI (Principal, Interest, Taxes and Insurance).
3. If you bought your home before the 2008 crash it’s a perfect opportunity to refinance
The years leading up to the 2008 crash were very fast paced in the mortgage industry. The ease of getting approved for a mortgage inflated prices and interest rates alike. If you were one of the lucky few that did not foreclose on their home during the crash and haven’t refinanced; now is the time. The Federal Reserve lower rates after the crash to boost the economy, rates are historically low and you can refinance into a better rate with an ARM.
4. If You Are expecting to make more money in the future You Can Qualify for an Initial Lower Monthly Payment
You can get pre-approved for a more expensive home with the initial lower monthly payment associated with an adjustable rate mortgage. We have had clients that are residents and are expecting to make more money once they become fully licensed and employed doctors. We recommend the ARM to them because they will most likely increase their income in the future. Another scenario would be for a recent grad, making their way up the corporate latter.
Watch a quick 30 second video to see if an Adjustable Rate Mortgage is right for you.
The Cons of Adjustable Rate Mortgage
1. Your monthly payments could get higher
Although there is a ceiling on how high your rate can go up, you could be stuck paying a higher rate than the market calls for. Meaning, your friend could get a 30 year fixed mortgage during the adjustable period of your mortgage and he/she could be paying a lower rate at that moment in time and for the future.
2. If you stay in your house for 15 + years your interest rate can increase
Its better to go with a fixed rate mortgage if you are planning on staying in your home for 15+ years. Given the fixed period on ARMs do not surpass the 10 year mark and will be subject to adjustments in the interest rate market.
3. Its hard to calculate investment property cash flows
Because rates are unpredictable, it will be hard to accurately calculate your investment property cash flows. Although your taxes or even insurance can go up any given year. The interest rate might fluctuate more due to volatile market conditions.
4. Rates are historically low
Might as well take advantage of the low rates for the next 15 – 30 years. Mortgage rates are subject to many economic factors, and not even the top economists can accurately predict the future mortgage rates. Like the old saying goes ” a bird in hand is better than 100 in flight”, better to seize the moment and go for the secure.
Interested in learning more about ARMs? Contact our team of mortgage lenders in south Florida.