Anyone who wants to buy a house must take time to search for the cheapest mortgage on the market. However, the mortgage rate is not the only consideration as people also want a mortgage that does not require huge down payments. The ideal mortgage should also have low mortgage insurance premiums, a long repayment period, and friendly T&Cs. Since it takes a lot of time and effort to find the right mortgage, consumers are advised to work with the best mortgage brokers. MyHomeLoanRates.com.au is a top-tier mortgage brokerage company that can help aspiring homeowners find the perfect mortgage for their needs. If you want an adjustable-rate mortgage, the company will help you find the best deal on the market.
Below are Important Facts About Adjustable-Rate Mortgages
1. Interest Varies From Time to Time
The first thing you need to know about adjustable-rate mortgages is that the applicable interest rate is not fixed as it changes from time to time. The performance of the economy and changes in tax laws are some of the factors that may lead to a rise or drop in the rate of interest. As a result, you may end up making a higher interest payment in one year and pay a lower interest rate the next year depending on the interest adjustment period.
2. It is Unpredictable
Consumers usually take an ARM with the hope that interest rates will drop in the future. Unfortunately, interest rates may continue going up, which means that borrowers will continue spending more on interest payments. However, market rates may drop drastically, leading to a significant reduction in interest rates. As you can see, these loans are unpredictable because the monthly payments can either increase or reduce depending on the market. First-time home buyers usually look for loans that are predictable to make budgeting easier for them, so this option is usually unattractive to them.
3. ARMs Can Be Cheaper in The Long Term
Most mortgages usually come with a term ranging from 15-30 years. This is a long time, so interest rates are likely to be adjusted multiple times. Since the economy cannot perform dismally throughout the term of the loan, an adjustable-rate mortgage may be cheaper in the long term.
4. Interest Rate is Reviewed Periodically
When comparing adjustable-rate mortgages, you must pay attention to the interest rate review period. For instance, a 1-year ARM is an adjustable-rate mortgage that is reviewed annually. A 5-year ARM is a mortgage whose interest rate is reviewed after every 5 years. Imagine getting a 5-year ARM with an attractive interest rate. For five years, you will be able to enjoy the lowest rate of interest regardless of the performance of the market. During this period, interest rates may rise and fall without affecting your mortgage payments.
5. Initial Rate is Always Lower Than Fixed Rate Mortgages
The interest rate quoted by lenders for adjustable-rate mortgages is always lower than the interest charged on FRMs. While the rate of interest may increase or reduce over time beyond the prevailing FRM rates, the initial rate is usually comparatively cheaper. This means that if you get an ARM with a 5-year review period, you can save a lot of money. Experts say that ARMs are cheaper than FRMs during the first 3-7 years. After that, nothing is predictable.
Now you know the facts about adjustable-rate mortgages. When you want to buy a house, you will have to consider a variety of factors before you can decide to procure an ARM. An adjustable-rate mortgage is right for you if:
– You can offset the loan within a short period. If you can pay off the mortgage within 10 years or less, an adjustable-rate mortgage will be perfect for you. The best thing about a short-term mortgage is that the amount of interest you’ll eventually pay is much lower. For instance, you may be expecting your income to increase considerably within a year or two. You can use the higher income to pay off the loan faster.
– You don’t plan to stay in the house for a long time. If you’re not planning to stay in the house for more than 3-5 years, an ARM may be a great deal for you. This is because you will enjoy a low rate of interest and sell the house before the interest is reviewed.
– You expect a lump sum payment to offset the loan. If you are expecting a significant amount of money from your inheritance, insurance benefits, or a cash prize you recently won, you can procure an adjustable-rate mortgage to help you buy a house as you wait to receive the lump sum payment. You might have also put up your current home for sale, but it’s taking time to offload it. As you wait for the sale to go through, you can take out an ARM to buy the home of your dreams. Once you get the money, you can pay the outstanding balance fully.
It is crucial to consult an expert when looking for an affordable mortgage. This is because you would like to make a decision that is informed.