Adjustable-rate mortgages (ARMs) have been notorious for their volatility. This is why many Connecticuters (like other Americans) only consider them when they couldn’t lock in a favorable interest rate for 30 years.
Although there’s no denying that they’re far riskier than their fixed counterparts, they’re not as scary as you think. Any mortgage lender in Guilford, Madison, and North Branford would attest to these facts about ARMs:
Interest Rate Adjustment Won’t Go Out of Hand
Variable-rate home loans have a cap to ensure the increase won’t go out of control. It spells the limit on how much the interest rate can jump with every adjustment. This helps reduce the tremendous uncertainty ARMs already have.
Details Are Negotiable
Like other mortgages, ARMs are not a “take it or leave it” kind of deal. While the lender has the freedom to set the parameters, you do have the liberty to negotiate certain parts of the loan.
Of course, the loudness of your voice of request for concessions from the other party depends on how good your credentials are. If you have an excellent credit score or plenty of assets, you would have more power at the negotiating table.
Refinancing Is Always an Option
A mortgage, even an ARM, is not a marriage without a divorce option. Whether your lender imposes prepayment penalty or not, you can pay it off early through refinancing. Many borrowers use this strategy to avoid keeping the loan after the teaser rate is over.
After all, an ARM is usually a good option when you only plan to stay in the property you’re planning to buy for several years. If you’re uncomfortable with the prospect of paying a larger monthly mortgage payment after the ARM’s introductory period expires, a refi can bail you out.
An ARM isn’t for everyone, but it’s highly beneficial if it makes sense to your situation. If you exercise due diligence to calculate its risks and determine whether it’s perfect for you.