Adjustable Rate Mortgages (aka A.R.M) Don’t call it a comeback (LL Cool J style)! With mortgage rates starting to rise, selecting an A.R.M may be the best solution for getting a “lower interest rate”. The A.R.M loans have a misunderstood reputation. With my experience I feel what happened was the buyer was simply misinformed or were put into an A.R.M for the wrong reason.
Unless you are purchasing a home knowing you want to be there for life, sometimes an A.R.M can be a more sound financial decision. After all, if you are not going to pay the mortgage off, should you have a 30 year fixed rate? Possibly, but learn about the options and “arm” yourself with knowledge.
With new guidelines and tighter underwriting, lenders will not and can not get you into an A.R.M that will jeopardize your future. Lenders are required to certify your ability to repay and that means that you qualify for the “now” and the “potential change” of an A.R.M down the road. They are safe and sometimes even a smarter option than getting into a 30yr fixed rate. For example, did you know you can lock into an A.R.M for a fixed period of time, say 5, 7 or 10 years?
New Adjustable Rate Mortgages are all amortized (meaning the balance will be paid down). So, unless you put 30% down, an interest only (just being billed interest) A.R.M is not even an option for you. So there is a safety net after what happened. If you put 30% down , we can talk about Interest Only A.R.M loans.
The best advice I can give you is don’t let an A.R.M scare you, don’t listen to other peoples experiences, or what they think they know about them. Instead talk with your lender and ask them all the details, and have them educate you to see if an A.R.M is a better strategy for your life situation.