In the wake of the 2007 housing bubble bursting, adjustable rate mortgages (ARMs) got somewhat of a bad rap. The problem in the early 2000’s was too many borrowers were purchasing homes with ARMs without understanding how they work. The result was their ARMs began adjusting higher years down the road and unprepared borrowers found themselves unable to make their payments. But ARMs can be very useful loans when understood and utilized properly.
Paying a premium for 30 years mortgages
While 30 year mortgages are currently the most popular form of mortgage, they come at a cost. There is a premium, in the form of a higher interest rate, to be paid for the guarantee of keeping a rate fixed for 30 years. For homeowners who keep their mortgage a over the course of decades, that premium is well worth the security of a long term fixed rate. But the reality is that most people sell their home or refinance within 5 years of getting their mortgage. So most folks get a higher rate for the right to have a fixed rate for 30 years but then end up selling or refinancing a couple of years later anyway.
Who should get an ARM?
Folks who feel fairly confident they will sell their home in the next 5-10 years are excellent candidates for ARM mortgages. Rates on ARMs are significantly lower than rates on 30 year mortgages so refinancing to an ARM (or purchasing a home with an ARM) can lead to huge interest savings.
Contact us to get a quote on a government-backed ARM loan
If you think there is a good chance you’ll sell your home in the next 10 years contact us today to get an estimate on a refinance to an ARM. Rates on ARM lows are surprisingly low and a refi to an ARM could save you a ton of money over the next few years before you sell your home.