adjustable rate mortgages pros and cons

Dear Dr. Don, Can you help me to understand the pros and cons of adjustable-rate mortgages? After the ARM’s fixed period has ended (such as after one, five or seven years) and it’s time for.

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Adjustable rate mortgages (ARMs) are home loans with a rate that varies. As interest rates rise and fall in general, rates on adjustable rate mortgages follow. These can be useful loans for getting into a home, but they are also risky. This page covers the basics of adjustable rate mortgages.

The Pros Of Adjustable Rate mortgage loans adjustable rate mortgages always offer an initial interest rate that is lower than you would get from a fixed-rate mortgage. For example, if you can get a fixed-rate mortgage with a 5-percent interest rate, you probably can get an adjustable rate mortgage that starts at 4 percent or less than that.

For example, a 5/1 ARM refers to a 5 year fixed interest rate with the number "1" referring to the interest rate adjusting annually after the 5 year fixed term. To determine if an Adjustable Rate Mortgage is right for you, consider the pros and cons:

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Fixed vs. Adjustable Reverse Mortgages On a fixed rate reverse mortgage, borrowers accrue interest on the entire loan balance which is taken at loan closing.

Fixed-rate and adjustable-rate mortgages have similarities and differences, depending on your financial needs and prospects.. so exploring the pros and cons requires an understanding of some.

Payment cap: A limit on how much your mortgage payment can change, which is usually a percentage of the loan. Points: You can pay points in return for a lower interest rate. Points equal 1 percent of the mortgage amount. Nicastro Steve (2014 June 17) The Pros and Cons of Adjustable Rate Mortgages Retrieved on July 17, 2014 from NerdWallet.com

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Pros of Adjustable-Rate Mortgages. You’ll benefit upfront. Your interest rate might decrease. You might qualify for more house. Your payment might decrease. You might have flexible payment options if you choose a pay option ARM. Cons of Adjustable-Rate Mortgages. You could be left with a much higher payment. You might buy more house than you can afford.

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