Mortgage and Insurance Forum

[Alex Chris]

Part of the reason is all people want to hear is the rate, they make the decision based on what the rate is they do not look at the big picture.

Up until the last 12 months or so people would hear the lower rate and say that is what I want.

An adjustable rate mortgage is good for a couple of reasons;

1) if you plan on staying in the home for 3 years then a 5 year arm would be good for you.
2) If you know that you will definately refinance before the loan starts to adjust then it would be a good idea.

the other problem lower rates on the arms let people buy bigger homes then what they could afford. there is a program out there called an option arm which the monthly payment was based on 2% but you accrued interest at 6%. You had 4 payment options and everyone was making the smaller payment which zapped everyones equity.

[kindred]

Adjustable-rate mortgages (ARMs) have varied interest rates and may offer lower interest rate than fixed-rate mortgages but not for long. If interest rates rise, the increase in mortgage payments can be quite significant and can get to the point of not being able to afford your home anymore. During the mortgage lending boom from 2005-2007, for example, lenders offered subprime borrowers ARMs with low initial or teaser rates followed by a huge increases in the borrowers' monthly payments a few years into the loan. These borrowers were not able to endure the variable adjustments eventually causing them to default.

With fixed-rate mortgages, on the otherhand, the interest rate and monthly payment remain the same throughout the term of the loan, whether it's a 15-year, 20-year, or 30-year mortgage - the very reason why they are so popular with first-time buyers. However, because of this stable interest-rate feature, fixed-rate mortgages have a higher monthly payment compared to other types of home loans.