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Pros and Cons of an Adjustable Rate Mortgage

Aug 5, 2008
If you are like many Americans who have bought into the idea that it is almost impossible to own their own home, you are not alone. Your past financial decisions might have done a number on your credit. Don't get discouraged, there are actually several options available to borrowers.

Consider yourself a prospective home buyer and know that before you give up the idea of owning a home, think about your options.

One excellent idea for prospective home owners is an Adjustable Rate Mortgage (ARM) and it has many qualities that appeal to buyers. An Adjustable Rate Mortgage comes with interest rates that vary and are adjusted annually. These changes are due to the nation and government's economic patterns and the fluctuation that is taking place.

Not that long ago, there were limits added to the amount and number of interest raises that are made each year. This makes the loans more attractive to buyers, now more than ever.

Adjustable Rate Mortgages have lower interest rates up front, compared to Fixed Rate Loans. This can hold true even for the first few years. Say that the owner is not planning on staying in their home for more than five years, then an adjustable mortgage is the way to go. Now, if those plans change you could refinance the loan into a fixed mortgage. That is just something to keep in the back of your mind as a possibility.

There are advantages that come to the lender for using Adjustable Rate Mortgages. They reserve the right to adjust the interest rate whenever the nation's economy makes changes. As a result, an ARM could end up higher than the nation's interest rates.

Another benefit to the lender is that they are not required to lower their interest rates if the nation's rates start to decline. Adjustable Rate Mortgages are not required to follow any guidelines set by the government. So this results in more applications being approved.

Yet not all people applying for these loans are able to keep up with their monthly mortgage payments and any rising costs. This pushes some homeowners into foreclosure because of financial mistakes and oversights. Once a home is foreclosed upon it now belongs to the bank (or lender). They will sell it to make the mortgage payment, prior to foreclosure and any additional costs.

In conclusion, there are a few advantages and disadvantages to an Adjustable Rate Mortgage. Yet, that applies to any type of a loan you are applying for. Take a look at your finances and really look at the pros vs. the cons. You have to do what is best for your individual situation. Whatever loan you decide upon, make sure that the positives are going to outnumber the negatives.

As with any business decision, especially one that has an impact on your future, just take your time. It always helps to work with a reputable company, one that can help you make the right decision when it comes to your mortgage!
About the Author
Christina Costa, a freelance writer, recommends eQuoteGrabber.com for refinancing your home where you can receive help with all of your mortgage needs in seconds! Visit http://www.eQuoteGrabber.com
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