Find out if Adjustable Rate Mortgages (ARMs) is the right loan for you

Pros

• Initial payments are typically lower than fixed rate mortgage thus making payments initially more affordable.
• If borrower expects to keep loan for only 3-5 years, or if the general interest rate market is expected to decline over the short-term, an adjustable-rate mortgage may be less expensive than a fixed rate mortgage.
• Periodic rate adjustments and maximum interest rate are capped.
• Loan pays off in full by the end of the term – no balloon payment at end.
• Loans are readily available from many sources in the market (i.e. Banks, Mortgage Companies, Savings & Loans, Credit Unions).

Cons

• Monthly payments will change (increase) making it more challenging to plan and budget monthly expenses.
• Interest rate and payments will change periodically, and could rise substantially May exceed payment level of a fixed rate mortgage.
• Require good borrower qualifications – good credit, steady income and larger down payment/ more equity.
• Qualification is based upon current “fully adjusted rate” not starting rate.
• Requires full principal and interest payment each month.
• Requires larger equity percentage if borrower want to access equity via a Cash-out Refinance -limited to 80% of the value of the property less existing liens.
• Requires full loan application, borrower documentation and appraisal, and may take 30-45 days to obtain funds.
• Up front closing cost and fees are higher than similar government loans.
• Can not be used on properties currently under construction.