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Adjustable Rate Mortgages - The PROS & CONS

Now that you know what an ARM is and how it works, you may be wondering what the advantages and disadvantages are. So let’s explore that issue.

Offering adjustable rates allows lenders to transfer part of the interest rate risk from themselves to the borrower. If you get a fixed rate mortgage and the interest rate then goes up, it costs the lender money. However, if you have an adjustable rate mortgage, as the interest rate goes up, so does your payment, thus compensating the lender. Adjustable rate mortgages are particularly useful when unpredictable interest rates make fixed rate loans hard to get.

One of the main advantages of an adjustable rate mortgage is that the initial interest rate is lower than that of a fixed rate mortgage. A lower rate means lower payments, which may help you qualify for a larger loan. This is an important detail if you expect your future earnings to rise. In this case, the ARM will allow you to qualify for a larger loan amount earlier rather than later.

However, this information should only be used with care. If you use an ARM to qualify for a larger loan amount than a fixed rate would allow you and the interest rate then rises drastically or your income doesn’t rise, you may not be able to afford the larger monthly payments, thus causing you to default on your loan.

A situation in which an adjustable rate mortgage makes sense would be if you are only going to keep the house for a short period of time. If you are only planning to own your house for only a few years, the risk of the interest rate rising goes down. This means that you will get a better rate with an ARM, making it a good choice. However, if you plan on staying in your home for a long period of time, a fixed rate may be a better option.

The lesson here is to have a plan. Know what your goals are in purchasing a home and plan for all eventualities. Do your research when shopping for an ARM and consider the worst-case scenario.

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The Realty Experts Testimonials

"Michelle helped my husband and me through our home purchase in Sun City Lincoln Hills with total professional guidance and support.  She listened to our concerns and needs for this purchase and found us our perfect home.  Michelle, with the help of Nick, are the very best REAL ESTATE PROFESSIONALS we could ever have imagined finding.  We both are truly grateful for their friendship and our positive home buying experience." Bernard and Anne B.
"Our experience when selling our home was very pleasant.  Michelle was knowledgeable and well prepared and patient.  She was very much appreciated!" Bob and Carmelina
"You were really fantastic to work with and we wish you and your son only the best.  If you are ever in the Boise area, please come and visit."
 
Tom and Paulette M.
"Susan and I went out to have a celebratory dinner and over drinks we both agreed: You are the greatest!!"
 
Gary and Susan J.
"Michelle is extremely professional and well prepared. At my first meeting with Michelle to sell my Mother's home, she came prepared with marketing materials, information about herself, the current market conditions and details about my Mother's home. She provided advice as to how best sell this house and had all the trades people we would need to get everything done to sell the house for the best possible price. After the estate sale, she made all the arrangements with the trades people and the photographer before listing the house. The house was listed and that weekend, Michelle had a Open House on both Saturday and Sunday. 22 days later, we closed escrow!!! Michelle was a pleasure to work with. I will not hesitate to use Michelle for any future real estate needs nor to recommend her to anyone who may need a Realtor who really knows the Sun City Lincoln Hills real estate market."
 
Jerry and Kathryn R.
"I appreciated your professionalism and great timing in initiating the sale of my home.  It was an easier process than I expected, and am pleased with the outcome.  Thank you for your thoughtfulness." Beverly L.
"Michelle did a great job handling the sale of our home and purchase of another.  She was on top of all the details every step of the way including all the paperwork!!  Less stress for us, so appreciated! Ray and Arlene C.
"Michelle did a fantastic job in selling our mom’s Sun City home.  We live out of the area and were not able to be present during the sale process. Michelle has an extensive network of contacts who were available to provide all the services we needed.  All of them did a great job. As did Michelle. She sold the house on the first day.  Thank you Michelle".
 
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"Thank you for your level of professionalism that you showed during the sale of our home.  You are a beautiful person and your caring helpfulness will be remembered with great appreciation." Steve and Kathy P.
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