Why choose a 5 year adjustable rate mortgage (5 year ARM) vs traditional 20 or 30-fixed?
Answer:Well, taking a 5 year adjustable rate mortgage (5 year ARM) has distinct flexibility.
If you intend to stay in your home for 20 years or more, you might do better with a fixed rate traditional mortgage.
However, if you want to change neighborhood or state, for some reason - your mother retires in 3 years and may need you more or your daughter starts school and your preferred school is in another district, an ARM like the 5 year adjustable rate mortgage will give you a lot more options.
First of all, you will know you will be moving, so you don't have to pay higher rates as in fixed rate mortgages. This means, you can choose to make normal monthly payment, or take advantage of the interest-only and minimum payment options usually offered with all ARMs, not only with the 5 year adjustable. Thus, you won't be putting your money towards the principal of a home you never intended to keep.
Second of all, with a 5 year ARM your rate may adjust downwards, and even if it adjusts up, just sign for a mortgage that allows for sale, refinancing or switching into a fixed-rate with minimum or no costs.
Our advice: Be sure to ask your lender about FHA loans. FHA loans have very competitive interest rates because the loans are insured by the US Federal Government. Even if you have had serious credit problems, such as bankruptcy, it is easier to qualify for an FHA loan than a conventional loan. Also, taking an FIXED rate loan while the interest rates are still low is a smart idea. Check your eligibility here:
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