There are lots of features to consider when shopping for a mortgage. An important decision to make is getting a fixed or adjustable rate mortgage. There are pros and cons to both and you budget, and housing needs and acceptable risk will factor into the decision. Zion Mortgage offers adjustable rate mortgages in Texas, and we can help you. Let’s have a look at adjustable rate mortgages and why one might be a good option for you.
Adjustable Rate Mortgage
What is an adjustable rate mortgage, or an ARM? It’s a home loan with an interest rate that can change periodically. Changes in the interest rate will cause the monthly payments to go up or down, depending on the direction of the index rate. The initial interest rate is usually lower than a similar fixed rate loan. After the fixed rate period of the ARM, the interest rate of the loan moves based on the index it’s attached to. The index is an interest rate set by market forces and published by a neutral third party. There are lots of indexes, and the loan paperwork indicates which one a specific loan follows. Interest rates are unpredictable and can fluctuate up or down; that’s where the risk comes in. You could wind up with lower rate and lower payment, but the opposite could also be true.
Benefits of an Adjustable Rate Mortgage
Adjustable rate mortgages in Texas have the same advantages as other states. The lower fixed rate and payment early in the loan allow buyers to get more house. Lenders can consider the lower payment when qualifying and lend more money. Adjustable rate loans allow borrowers to take advantage of falling interest rates without having to refinance their loan. Instead of paying additional closing costs, ARM borrowers can sit back and watch the rates and their payments go down. Flexibility is the other plus of the ARM. Home buyers who don’t plan on being in one area for long can get a better deal. If they move on and sell the house before the ARM kicks in, they can enjoy a more expensive house at a lower interest rate.
