Yes, rates have crept up from where they were a year ago, and although most of Opes’ borrowers are seeking 30-year fixed-rate mortgages, we are often asked about adjustable rate mortgages.
The primary reason why people consider ARMs is because they often have a lower interest rate than fixed rate loans. The risk is that the rate on your ARM could go up in the future, after the initial fixed period. For instance, if you think that you may sell the house or refinance within a 3-4 year timeline, you might want to consider a 5-year ARM to buy yourself a few extra years in case plans change. Talk to your Opes Advisor about the small difference in rate.
It is a good time to mention that our Advisors will point out that most ARMs have an initial note rate that is fixed for a period, usually 3, 5 or 7 years. After the initial fixed period, your mortgage interest rate would change based on adding the “then” current index to the margin. We tell our clients that the Index can change but the margin cannot, and that it’s important to pay attention to the “caps” on your loan because these caps indicate how much your mortgage rate can change after the initial fixed period.
The main risk with an ARM is that your mortgage rate and monthly payment could go up after the initial fixed period. Our Advisor will explain the various indices that could be used on your ARM so that you know what could cause your interest rate to go up or down in the future.
By comparison, the main risk with a fixed rate loan is that you’re losing cash flow NOW in exchange for the chance of saving money at some point down the road if you keep the loan for more than 3, 5 or 7 years.
Adjustable rate mortgages are nothing to be afraid of, and Opes Advisors has helped a large number of borrowers obtain an ARM loan. Be sure to ask your Advisor and the programs and rates.