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What You Need To Know About Adjustable-Rate Mortgages
The Rate Will Change
An important feature of an adjustable-rate mortgage (ARM) is that the interest estimate will change after the introductory period. There’s no way to be certain whether this is a positive or negative thing — for example, since April 2022, rates have risen more than 1.5%.
Heightened Payments
Be prepared for your monthly payments to fluctuate alongside the interest rate as you may be saddled with larger monthly payments for one or more readjustment terms. When your payments are lower, you might want to set something aside for the inevitable higher payments to come.
Initial Rate Is Lower
One of the most enticing features of an ARM loan is the initial fixed-rate period that is lower than the market value for fixed-rate loans for the first years of your mortgage. This is great for those with a new college student or newborn in the beginning stages of homeownership.
Budgeting Is Difficult
As your rates vary month to month, budgeting can be immensely difficult as your repayments can increase by hundreds of dollars. However, when approaching the first adjustment period, you could refinance your loan to protect against an upward-moving market.
Short-Term Plans
If you’re only planning to stay in your house for a few years, you might want to take advantage of an ARM’s low fixed-rate period before reselling. Buying a home with the smallest possible repayment option can access the home’s rising equity value before selling at a premium.