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ARMs – Are They Still Worth Talking About?

October 26, 2011

Mortgage Banker Gregg FitzGerald

With mortgage interest rates at an all-time low, most borrowers are flocking to fixed rate loans. About 95% of those who refinanced their mortgages in the first half of 2011 have chosen a fixed rate loan. Why wouldn’t they? There is stability and security in knowing the monthly payment will never change.

 So what about adjustable rate mortgages? Has their time come and gone? Would someone be crazy to even consider one?

 Actually, in both up and down housing markets, there’s still a place for adjustable rate mortgages for some borrowers with specific situations. Here are some examples:

  • Individuals who move around a lot for their jobs.
  • Borrowers who are likely to enjoy a higher salary in the near future, like new doctors or lawyers.
  • Those who can afford a higher payment, but chose to use the savings to invest in other areas.
  •  Those who would like a lower term on their mortgage with a lower interest rate as they can save money on interest overall.

You probably have some clients who fit into one of those categories. For them, an ARM may be a savvy choice that can save them money and help them get into the home they want.

 

 What’s the best way to determine if an ARM is the right fit for a homebuyer? The same way we determine if any mortgage is a good fit… asking questions and encouraging clients to ask questions, too.

 Do borrowers fully understand the jargon and mechanisms in an adjustable rate mortgage? Many don’t understand when the rates will adjust, how often they can adjust, and what the maximum rate may be.

  • Can they afford both the introductory payment (which may be fixed for 5 or 7 years) and a higher payment if rates do adjust upward? Often, the ARM’s “worst case scenario” will still be a lower cost than a fixed rate loan.
  • Are the customers uncomfortable with risk? If your customer is going to lose sleep worrying about a possible rate change, a fixed rate loan is the better choice.

Do you have customers who may benefit from an adjustable rate mortgage? We offer a variety of programs including our popular 5/1 and 7/1 ARMs. Contact one of our loan officers today for more information or to get your customer pre-approved!

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