When Is It Smart to Get an Adjustable Rate Mortgage?
By Richard Iyobebe
It felt great when you first moved into the home. You can recall the moment you first put the key in the door and it was official. This is your home. You had no idea it was going to get this bad. Even though there was a little hint of doubt, you signed the papers anyway. The loan officer told you “you can just refinance the loan in two years, but now you are in a mess. You lost your job due to no fault of your own and wasn’t able to pay your credit card bills, so your credit took a hit in the process. Now it has come time to refinance that 2-year adjustable rate mortgage, but when you go to the mortgage company that previously financed you, he gives you a bit of a surprised look as he pulls your credit. Ma’am your score was 675 when we first financed your house, now the score has dropped to a 530. There is nothing we can do. Wow what a shocker you think. Your mind is flooded with thoughts on how the rate is going to go up on you and how your mortgage payment was already high. What are you going to do?
Sadly this scenario is true for a lot of people. Most people in America today have their homes on adjustable rate mortgages. In the past, banks main mortgage products were fixed rate mortgage. They found out that when the economy started to go down, or The Federal Reserve raised interest rates, they were losing money because they had all of these customers with fixed rate mortgages. So they couldn’t raise the customers rate because they’re mortgage terms were fixed for a certain period of time. This is when bankers came up with the Adjustable Rate Mortgage (ARM). The rates on Arms are much lower than the rates on Fixed Mortgages. This is why most homeowner’s mortgages are an Adjustable Rate Mortgage.
I’m not saying ARMS are bad but you really need to know when to use them. I see the above scenario in my office everyday. Here is my rule of thumb. Always go for a mortgage that has a fixed rate. If the rate is too high on the fixed rate, get your credit repaired and then come back and get the loan.
Well, when is it smart to get an adjustable rate mortgages. ARMS are great for people who are not going to be living in an area for a long time. I’m not talking about a person that thinks they will be in an area for a certain amount of time. I’m talking about someone that knows. ARMS are good for the Guy or Gal in the Military and they are sure that they will be shipping out in the next year or two. Arms are also good for those that flip property; they never hold a mortgage for more than a year. Most loan officers use adjustable rate mortgages to get a customer into home, but the homeowner never make plans for the future. They think the situation that they had when they first got the loan, will be the same situation they will have when it is time to refinance. Sometimes that is the fact, but most of the time it is not. Make sure you think the decision through if you are deciding to get and Adjustable Rate Mortgage. Your future depends on it.
It felt great when you first moved into the home. You can recall the moment you first put the key in the door and it was official. This is your home. You had no idea it was going to get this bad. Even though there was a little hint of doubt, you signed the papers anyway. The loan officer told you “you can just refinance the loan in two years, but now you are in a mess. You lost your job due to no fault of your own and wasn’t able to pay your credit card bills, so your credit took a hit in the process. Now it has come time to refinance that 2-year adjustable rate mortgage, but when you go to the mortgage company that previously financed you, he gives you a bit of a surprised look as he pulls your credit. Ma’am your score was 675 when we first financed your house, now the score has dropped to a 530. There is nothing we can do. Wow what a shocker you think. Your mind is flooded with thoughts on how the rate is going to go up on you and how your mortgage payment was already high. What are you going to do?
Sadly this scenario is true for a lot of people. Most people in America today have their homes on adjustable rate mortgages. In the past, banks main mortgage products were fixed rate mortgage. They found out that when the economy started to go down, or The Federal Reserve raised interest rates, they were losing money because they had all of these customers with fixed rate mortgages. So they couldn’t raise the customers rate because they’re mortgage terms were fixed for a certain period of time. This is when bankers came up with the Adjustable Rate Mortgage (ARM). The rates on Arms are much lower than the rates on Fixed Mortgages. This is why most homeowner’s mortgages are an Adjustable Rate Mortgage.
I’m not saying ARMS are bad but you really need to know when to use them. I see the above scenario in my office everyday. Here is my rule of thumb. Always go for a mortgage that has a fixed rate. If the rate is too high on the fixed rate, get your credit repaired and then come back and get the loan.
Well, when is it smart to get an adjustable rate mortgages. ARMS are great for people who are not going to be living in an area for a long time. I’m not talking about a person that thinks they will be in an area for a certain amount of time. I’m talking about someone that knows. ARMS are good for the Guy or Gal in the Military and they are sure that they will be shipping out in the next year or two. Arms are also good for those that flip property; they never hold a mortgage for more than a year. Most loan officers use adjustable rate mortgages to get a customer into home, but the homeowner never make plans for the future. They think the situation that they had when they first got the loan, will be the same situation they will have when it is time to refinance. Sometimes that is the fact, but most of the time it is not. Make sure you think the decision through if you are deciding to get and Adjustable Rate Mortgage. Your future depends on it.
