Tuesday, September 3, 2013

The Adjustable Rate Mortgage Is Making A Comeback

Yep, they are on the way back in. I've been watching it for the last 1-2 years creep it's way into our lives again.

The 5 or 7 year ARM is the most popular. It's a gamble at any year. But, it can work for the home buyer that is only going to stay for a short period of time.

I heard quite some time ago that most homeowners only stay for 7-8 years. I've yet to see that stat play out with my clients. For those that fit that pattern, an adjustable rate mortgage may be perfect for you. As long as you are still paying off your principal.

But do your math, calculate YOUR odds, make sure it's right for you or the bet you hedged may cause a larger loss than you can afford.

Current rates for the 5 year is 3.75, the 7 is 3.875. The 30 year fixed is hovering around 4.625. What's the difference in a mortgage payment?

Easy example:

500k loan at 3.75 = $2350.00

@ 3.875 = $2460.00

And, at the traditional 30 year fixed current rate of $ 4.625 = $2645.00

Is 300/month worth the risk to you? If you know for sure you're moving before the loan needs to be refinanced it's a great way to save some cash. But, if you're just trying to squeeze into a more affordable payment, it may be to large of a risk for your future.

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