When it comes to mortgage rates, you have two main options: adjustable or fixed. Each has benefits and drawbacks, but if you are looking to save money over the short-term, an adjustable-rate mortgage may be a fit.
An adjustable-rate mortgage, or ARM, is a loan which starts out with an introductory rate. This promotional rate is highly competitive, and may be superior to many of the fixed interest rates currently on the market.
During the introductory period, the initial rate is locked. After the introductory period is over, the rate becomes adjustable. From that point forward, how much you pay in interest will depend on the value of the prime rate or Treasury bill rate. It could go up, remain the same, or even go down.
Here are some reasons to consider an adjustable rate mortgage:
Over the introductory period, you may be able to pay less with an adjustable rate mortgage then you would with a fixed rate mortgage. Your introductory period can last from 1 month up to 10 years. In some cases this may provide you an initial rate that is fixed for the entire time you own the property.
There is a chance that interest rates could drop in the future, in which case your adjustable mortgage rate could drop as well.
You can take advantage of the money you are saving during the introductory period. Consider using it to make upgrades to your home or to make an investment.
Here are some situations where an adjustable rate mortgage might be a good fit:
If you know that you will only likely be living in the Seattle area for a few years, an adjustable rate mortgage could allow you to save money with minimal risk.
Another scenario where an adjustable rate could make sense is when you feel confident that you can substantially pay down or pay off the full cost of your mortgage within a relatively short time period.
You might also consider an adjustable mortgage rate if you require more financial liquidity over the next few years to pay for other obligations. For example, there might be a promising investment you need the money for, or you may be planning to put it into your own start-up. It is up to you to weigh the risks and potential rewards.
Need help determining whether an adjustable-rate mortgage might be right for you? We can answer any questions you might have or help you apply for either an ARM or fixed rate mortgage. If you're ready to schedule a consultation, please call (206) 352-6453.
Blue Square Mortgage is an Equal Housing Lender. As prohibited by federal law, we do not engage in business practices that discriminate on the basis of race, color, religion, national origin, sex, marital status, age, because all or part of your income may be derived from any public assistance program, or because you have, in good faith, exercised any right under the Consumer Credit Protection Act. Disclaimer: Programs subject to change without notice. All borrowers must qualify per program guidelines.