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Adjustable Rate Mortgages Make a Comeback

March 15, 2011

From Loan Officer Patty Seagrave

Adjustable rate mortgages have earned a negative reputation as one reason the mortgage market collapsed. It’s true that exotic versions of some ARMs were riskier and contributed to the housing downturn, but traditional ARMs have been available for decades, and still are a financially sound choice for certain buyers.

 

5/1 ARM – Most Popular Hybrid Loan

The most popular ARM is the 5/1 hybrid, and for good reason. It delivers the best of both an ARM and fixed rate mortgage to your homebuyer. Its interest rate is locked, just like a fixed rate loan, for five full years, for peace of mind. After that, the rate can adjust up or down with the market once a year.

5/1 ARM’s lower rate makes this perfect for some buyers

5/1 ARMs have lower interest rates than fixed rate loans. Typical homebuyers who benefit from a 5/1 ARM are those who know they’ll be moving or transferred within five years. Because they will pay off the mortgage before the 5-year lock expires, they’ll probably not experience a rate increase, but will enjoy lower payments, more typical with an ARM.

An ARM may also be smart for homebuyers who are just starting their careers and need a more affordable monthly payment right now, but know their income will increase in the future.

Experts agree that homeowners are slowly overcoming their wariness of ARMs. In 2009, just 3% of buyers considered an ARM, but in 2011 that number is projected to be 10%. Many people are a good fit for this flexible and affordable option.

Source: Money.CNN.com

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