There's been a lot in the news the past several months about mortgage interest rates and how it's affecting the real estate market here and nationwide.

There's been a lot in the news the past several months about mortgage interest rates and how it's affecting the real estate market here and nationwide.
The reality is that not everyone can wait for mortgage rates to hit "record lows" again before moving — and that's why we want to reintroduce you to the ARM.

ARM stands for "adjustable rate mortgage." This type of mortgage is one that offers a low interest rate for the first several years of the loan term, along with a fixed principal and interest payments. Once this introductory period is over, the mortgage rate will adjust based on whatever the current market rates are at the time. This adjustment could move your interest rate up depending on market conditions.

When interest rates are rising or volatile like they are now, adjustable-rate mortgages can be a smart financial option.

High interest rates, as well as the rising costs of home financing which often accompany them, may be discouraging if you're looking to buy a home. Taking out a mortgage with a fixed, lower rate for an introductory period can help make a home purchase affordable, even when interest rates are on the upswing.

ARMs are particularly beneficial for buyers who plan to sell their home well before the 30-year mortgage term ends. This way, they’ll only need to pay a potentially higher interest rate for a fairly short amount of time. If the buyer sells the home within seven years, they won’t have to pay a higher rate at all.

How do ARMs compare to other mortgage rates?

ARMs tend to have lower initial interest rates than traditional 30- or 15-year fixed-rate mortgages. Of course, after the introductory period is up, the interest rate will adjust according to the then-current market rates. Most ARMs have a cap on the interest rate, which is outlined in the mortgage contract. It’s important to make sure you can afford the highest possible rate before signing up for an ARM. If, at the end of the introductory period, you find that you cannot afford the mortgage with the new, higher rate, you may consider refinancing.

What do I need to consider when shopping for an ARM?

If you’ve decided to purchase a home using an ARM, it’s a good idea to keep these factors in mind when looking for a loan:

• Are you expecting an increase in your income by the time the introductory period for the loan is over?
• Are mortgage interest rates rising now?
• What is the cap on the interest rate after the intro period is over?
• Do you plan to live in this home until the end of the 30-year mortgage term?

Can I refinance my current mortgage to an ARM?

If you have a fixed 30- or 15-year mortgage and you plan on selling your home within the next seven years, refinancing to an ARM can be an excellent choice. You may be able to lower your payments until you sell your home, and you can use the money you save to invest, pay off debt or to fund home improvement projects that may increase the value of your home. Before taking this step, though, crunch the numbers to be sure you’re actually saving money, especially if your current rate is relatively low.

Have questions? Let's start a conversation! Schedule a no-obligation consultation with our Member Advantage Mortgage Loan Officer Carolyn Stein. Carolyn would be happy to discuss your situation and talk about options with you!