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is an adjustable rate mortgage a good idea

"Do you think an adjustable rate mortgage is a good idea?" The answer, of course, is, "It depends." Over the long term (years) rates are expected to creep higher.

Put simply, the 5/1 ARM is an adjustable-rate mortgage with a 30-year loan term that’s fixed for the first five years and adjustable for the remaining 25 years. So during years one through five, the interest rate never changes.

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An adjustable rate mortgage, called an ARM for short, is a mortgage with an interest rate that is linked to an economic index. The interest rate and your payments are periodically adjusted up or down as the index changes.

An adjustable rate mortgage transfers all the risk from the lender to you The advantage of a 30-year fixed rate mortgage is that it is a virtually risk-free mortgage. Once you lock in your rate, there’s virtually no chance that the rate will go up over the entire term of the loan.

What Is an Adjustable Rate Mortgage? An adjustable rate mortgage may not seem like a bad idea at first. It even looks like it’ll save you money on your monthly payment compared to getting a conventional loan. What’s not to love about that? But here’s the truth. An adjustable rate mortgage (ARM) is a type of mortgage that is just that-adjustable. That means, while you may start out with a low interest rate, it can go up.

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En espaol | Deciding on a home mortgage can be tricky business for older borrowers – especially if they’re trying to choose between a conventional 30- or 15-year fixed-rate mortgage and an adjustable-rate loan (arm).. arms offer the potential for big savings – a temptation to many homeowners in or near retirement and who want to lower household fixed costs.

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The obvious advantage of an adjustable-rate mortgage is that they carry lower interest rates during the fixed period of the loan. At the time of writing, the lowest rate advertised on a major.

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And you should always prepare for a higher interest rate adjustment if you’ve got an ARM. In fact, during the loan application process mortgage lenders typically qualify you at a higher expected rate to ensure you can make more expensive mortgage payments in the future should your ARM adjust higher.