If you’re purchasing a new home in metro Atlanta or refinancing your current loan, your lender may have introduced you to an adjustable-rate mortgage (ARM) as an option. ARMs may make sense for some home buyers or owners, but it’s important to understand what they are and how they work before choosing this type of loan. The experts at the Equifax Finance Blog explain ARMs in its recent article, “
The major difference between a traditional loan and an ARM is that an ARMs interest rate will change over the life of the loan. The loan begins with a fixed-rate period that is usually three, five, seven or 10 years. Once the initial fixed-rate period ends, the interest can fluctuate based on a prespecified index. Typically, the fluctuations happen on an annual basis and have caps as to how high they can go.
If you’re ready to apply for a loan and are unsure about whether or not an ARM is for you, here are a few things to keep in mind:
- Time: Two important considerations are how long you plan to take to pay off the loan and how long you plan to be in the home. If you plan to pay off the loan or move within the fixed-rate period, an ARM may be a good option.
- Future Income: While it’s impossible to predict your future financial situation, it’s important to consider whether your income will rise or lessen during the time you’ll be paying back the ARM. Situations such as starting a family or working in an unpredictable industry can mean an ARM is more risky for you, as your income may not be enough to cover rising interest rates in coming years.
For more information on adjustable rate mortgages and whether or not it’s the right option for you, read the full article on the Equifax Finance Blog.