Mortgage Loans – Part 3 One Year Adjustable Rate Mortgage

Mortgage Loans – Part 3

One Year Adjustable Rate Mortgage

Known as an ARM loan, these mortgages change their interest rate every year, much like flapping your arms up and down. The rate is usually tied to a market index that fluctuates. The good thing is that the interest rates are usually lower than a new fixed rate loan, and can save you a substantial amount of money in interest. The bad thing is that if interest rates sky rocket, so does your mortgage.

Loan officers will often tell you that you can always refinance later and switch to a fixed rate mortgage. That’s true. But remember that adjustable rate mortgages usually have a lower interest rate than fixed rate mortgages, so unless you get a nice downturn in interest rates in the middle of the year, it will always be tempting to keep the loan you have. If interest rates rise drastically, then you may find yourself unable to make your payments (and kicking yourself).

However, if you are looking for the best deals in interest rates, you can often find them with this type of loan. Just be prepared for the ups and downs of the market. If you are living in a house short term, this may be the loan for you. It’s less scary than a balloon loan if the house takes a while to sell, but you can often get the best interest rate and save yourself a substantial amount of money. Always remember to make a plan and account for the what ifs that could ruin it.