Is An Adjustable Rate Mortage The Right Loan For You?

There are lots of misconceptions surrounding Adjustable Rate Mortgages (ARMs), mostly because they have been thought of as the 'villain' of the housing crash. Although there were lots of ARMs written leading up to the crash, qualifying for an ARM back then, and how they were structured,is a far cry from how ARMs are written today.

In light of rising mortgage rates, more buyers may be looking at the advantages of an ARM and how they can save money.

There are many situations where an Adjustable Rate Mortgage can be the best choice for a home buyer.  Let's take a look at some of those situations:

Rates for ARMs can be fixed for up to 10 years, meaning there will be no change in the interest rate during that time. Statistics show that over 90 percent of homeowners don't stay in the same mortgage for nine years, for a variety of reasons.  If you don't anticipate staying in the same mortgage, or perhaps even in the same house, you may want to look at how much money you can save over the period of time you do stay in the mortgage.  It could be significant.

Generally, an ARM will allow you to purchase a more expensive home, since it offers a lower interest rate. It might work well for someone who expects to earn a higher salary in the future, when the rate adjusts. You can also refinance when the fixed term of the ARM is over.  Keep in mind that the rates may be higher then, but that is the risk you are taking.  The money you save all those years may more than make up for any rate increase or cost to refinance.

First-time homebuyers, who intend to trade up quickly, can save a lot of cash using an ARM.  So can borrowers who will only be staying in their home for a few years before selling it and moving on.  

Read more about how ARMs work and how this type of mortgage can benefit your situation.  How this 'villain' of the housing crash could be right for you now - Adjustable rate mortgages used to carry a stigma, but here's why they may be low-risk for borrowers now. [Real Estate CNBC]