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Mortgage Payments Don't Have to Cost an ARM and a Leg
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LOS ANGELES --
Okay, we couldn't resist the opportunity
for a pun in the headline. Putting levity aside, we will look at how an ARM (adjustable
rate mortgage) can be of benefit to today's
refinance or home purchase
candidate.
With the gradual rise in
mortgage rates
for 15 year, 20 year,
30 year
fixed interest rates many U.S. homeowners are opting for the flexible ARM
(adjustable-rate mortgage) when buying or refinancing properties. Let's take a
look at why, and how it can possibly benefit you:
As a contrast to the traditional
fixed-rate
mortgage, adjustable-rate mortgages typically begin their gestation with a
lower interest rate, and
slowly the rate will rise as time passes in the duration of the loan. Compare
this to fixed interest rates, which lock rate for anywhere from 15 years to 30
years.
The Mortgage Bankers Association, or commonly known to mortgage companies as
MBA, in Washington, D.C. says that ARMs are the popular choice of late,
evidenced by more than a third of home lending's
applications in recent weeks. The MBA also indicates that the share of
adjustable rate mortgages will likely increase as the Federal Reserve continues
to push up interest rates in forthcoming summer months.
Based on the above, it's no wonder homeowners look to the ARM loan to help keep
monthly mortgage payments low in the short term light. There is, however, always
one fact to consider: Because rates on their loans will most definitely move
upwards with the swing of the mortgage market rate hikes, there is possibility
that by adjusting the rate monthly some homeowners risk paying higher payments
in the future.
The good news is that there are a wide variety of adjustable rate mortgage
options available in the marketplace.
Right now the most popular are hybrid ARMs. These types of adjustable programs
guarantee the borrower a fixed rate for the first three, five or seven years,
depending on whether a 3/1, 5/1 or 7/1 ARM is chosen, respectfully. The rates
then adjust annually in harmony with Treasury rate fluctuations.
Interest rates for hybrid 5-1 ARMs currently is on average 5.66 percent country
wide. The 7-1 ARM carries an average rate of 5.90 percent. As the rates begin
their adjustments over time increases can be 2 percentage points a year or more.
When fully fully adjusted, rates on ARMs would both approach 12 percent.
To get an ARM mortgage quote online now simply visit our secure
mortgage quote page.
Article by Stockton Marquette
Economic Analyst and Mortgage Industry Advisor/Forecasts.
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