Adjustable Rate Mortgages Basics


If you are currently looking to buy a home, chances are there are a number of amenities you are considering. You may prefer an open concept floorplan, or a large backyard to entertain guests. Maybe you’re in need of an extra-large garage or shed to store your tools and other equipment. Whatever the case, you will likely do plenty of homework before buying your home.

Colonial offers a number of mortgage solutions, like low down payment or construction loans. An additional loan type homebuyers should consider is an adjustable rate mortgage. Another important consideration for homebuyers is finding the home loan program that best fits their financial needs. Colonial offers a number of mortgage solutions, like low down payment or construction loans. An additional loan type homebuyers should consider is an adjustable rate mortgage.

An adjustable rate mortgage, or ARM for short, is a type of mortgage in which the interest rate may vary throughout the life of the loan. For example, your ARM loan could be formatted as a 5/1, 7/1 or 10/1 ARM, meaning the mortgage payment will have a fixed interest rate for the first five, seven or 10 years, and then adjust every 12 months.

One of the things that make ARMs appealing to homebuyers is a lower beginning interest rate. For the first five, seven or 10 years of the loan, the interest rate can be lower than the current market rate, allowing applicants to more easily qualify.

Also, with an adjustable rate mortgage, if interest rates are lower when they adjust yearly, you will take on that lower rate and you could end up saving money. However, it is important to note that if interest rates increase, your payment will also increase. In many cases, there is a maximum amount the interest rate can adjust, so speak to your loan officer to find out about this condition.

Another reason a homebuyer may consider an ARM is if they plan to sell their home before the end of the initial rate period. Maybe you are purchasing a home for your child while they attend college, or you plan on growing your family and aren’t quite ready for a larger home just yet. Whatever the reason you, you may consider an ARM.

When considering what home loan will work best for you, your first step should be to talk to one of our experienced loan officers who can help walk you through every step of the home buying process. They will help you find out if an ARM is right for you, of if any of our other loan programs will best serve your interests. Visit GoColonial.com to apply today and get one step closer to homeownership.

 

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One of the biggest hurdles that people face when buying their first home is knowing how much to save for a down payment. Learn more about Low Down Payment Loans from Colonial.

 

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