Josh Moody

First Choice Loan Services Home Mortgage

  • About
    • About Josh Moody
    • The Moody Team
    • Privacy Policy
  • Mortgage Info
    • What Not to Do During the Mortgage Process
    • Buyer Info
    • Seller Info
    • Closing Costs
    • Home Inspection
    • Loan Checklist
    • Loan Process
    • Loan Programs
    • Mortgage FAQ
    • Mortgage Glossary
  • Blog
  • Reviews
    • Testimonials
    • Google Reviews
    • Yelp Reviews
    • Zillow Reviews
  • Apply Now
  • Contact Us

Pros and Cons of Adjustable Rate Mortgages

April 18, 2018 by Josh Moody

Pros and Cons of Adjustable Rate MortgagesWhen you are in the market for a new home, you may be faced with numerous options for financing your home. One of the choices you will have to make is whether to apply for a fixed or adjustable rate mortgage. In some cases, an adjustable rate mortgage (ARM) may be your best option, but keep in mind, they are not the answer for everyone.

Adjustable rate mortgages can be risky for some borrowers and it’s important to understand both the pros and cons.

When To Consider Adjustable Rate Mortgages

Perhaps one of the best things about ARMs is they typically have a lower starting interest rate than fixed rate mortgages. For some borrowers, this means it is easier for them to qualify for a loan. ARMs are beneficial for borrowers who:

  • Anticipate an income increase – for borrowers who are anticipating their income to increase over the next year or two, an ARM may be the right option.
  • Will be reducing their debt – those borrowers who have automobile loans or student loans that will be paid off in the next few years may benefit from an ARM which would allow them to qualify for a larger mortgage today anticipating their ability to covert to a fixed-rate mortgage.
  • Are purchasing a starter home – when you anticipate living in a home for five years or less, an adjustable rate mortgage may help you save money for a bigger home.

Adjustable Rate Mortgage Concerns

There are a number of different types of adjustable rate mortgages and they are each tied to specific interest rate indexes. While an ARM may offer borrowers some flexibility in terms of income and debt ratios, the downsides cannot be ignored. Some of the cons of using an ARM to finance your mortgage include:

  • Rate adjustments – borrowers should carefully review their loan documents to see how frequently their interest rates may increase. Some loans adjust annually while other may not increase for three to five years after the mortgage is signed. For borrowers, this means they may anticipate an increase in their monthly payments.
  • Prepayment clauses – oftentimes, lenders include a prepayment penalty with ARM loans which can be surprising for borrowers. Before agreeing to an ARM, make sure you read the documents very carefully to determine how long you need to hold the loan and if there is a prepayment clause.
  • Home values – one of the biggest challenges borrowers face with an ARM is what happens if the property value decreases: Refinancing a home into a fixed-rate mortgage may be more difficult if this occurs.

Borrowers who are searching for the right mortgage should discuss all options with their loan officer. There are specific instances when an ARM may be the best option and there are other times, such as if you plan to stay in your home for more than five years, where a fixed-rate mortgage may be your best option.

Filed Under: Mortgage Tagged With: Adjustable Rate Mortgage, Mortgage, Prepayment

Should You Consider an Adjustable Rate Mortgage For Your Home Purchase?

April 5, 2018 by Josh Moody

Should You Consider an Adjustable Rate Mortgage For Your Home Purchase?With mortgage rates finally looking like they may move upward a bit as the overall market improves the adjustable rate mortgage starts to come into play again. Better known as the ARM home loan, the adjustable rate mortgage can be a flexible, powerful tool, depending on how it is used.

ARMs Can Help Save On Total Interest Expense

When rates were higher years ago, the ARM was an alternative way to obtain financing for a home without paying as much in interest with every payment. This was ideal for folks who felt that a few years forward the regular market rates would drop or they didn’t plan to stay in the same home for a number of years.

By trading away the mundane predictability of a 30-year fixed loan, the borrower was rewarded with a lower cost loan via an ARM. However, after a short period, anywhere from six month to ten years, the ARM would reset and the rate charged would change to a specific market index.

ARMs became all the rage in the early and mid-2000s as people bought homes to then sell them quickly with rising property values. It was low cost interest paid for large sums of financing, which was then paid back and profits were made just holding a home two years or so and well within the typical ARM period. However, when the real estate market went south a number of years back, many had to hold onto homes longer and rates reset to a higher, floating rate index.

The Advantages of Adjustable Rate Mortgages

Today, the advantage of the ARM again presents itself as rates begin to rise, offering again lower interest rates for home financing for a typical one to ten years. But these tools still include the rate reset after the intro period to consider, and with mortgage rates on an upward trajectory for the next few years it’s worth noting that the loan may cost more when the switch happens.

Thus a borrower should remember to look at the ARM as a shorter-term borrowing tool. A few options that can off-set the potential added interest rate costs in the future are:

 

  • sell the home prior to the reset date while verifying that there is no pre-payment penalty period
  • sell the home for a substantial amount more than it was bought for based on price appreciation or property improvement
  • refinance to a fixed-rate loan at a later date to avoid potentially higher index-based floating rates

 

The same caveat from a decade ago applies to today’s ARMs: they can be extremely valuable for up-front borrowing savings, but borrowers need to always remain aware of the included reset date and what it means for further financial obligations down the line.

As always, talk with your trusted mortgage loan professional to examine the best course of action for your personal situation.

Filed Under: Mortgage Tagged With: Adjustable Rate Mortgage, ARM, Mortgage

Next Page »
Josh Moody

Contact Josh


LPO Manager | Loan Originator

Call 979-997-2899
jmoody@fcloans.com

NMLS ID 139695
CLICK TO APPLY NOW →
DOWNLOAD MY APP →
First Choice Logo
First Choice NMLS ID 210764
Press Release Josh Moody
Josh Moody Earns First Choice Elite For 2016 Production →


Josh Moody: Five Star Professional Award Winner

Top 10 Dallas
Top 10 Dallas
Josh Moody
Top one percent 2016
Badge2017 AwardTeamwork Badge 2017Branch Growth Imagebadge Josh Moody2018 Badge 2017 Scotsman Guide Award

Connect with Me

  • Facebook
  • Google+
  • Linkedin
  • Twitter

Archives

Categories

Licensed by the N.J. Department of Banking and Insurance
AZ BK#0918586
Equal Housing Lender
Privacy Policy | fcloans.com | Click for disclaimer

In accordance with Section 326 of the USA PATRIOT Act of 2001, First Choice Loan Services Inc. is required to obtain a copy of the documents used in identifying our new account customers. This notice is being provided to you for adequate notice given under this act.
First Choice Loan Services Inc. – NMLS# 210764
Berkshire Bank – NMLS #: 506896

Our Location

5000 Legacy Drive, #180
Plano, TX 75024
Business: (979) 997-2899

Copyright © 2018 · Powered by MySMARTblog