Question:

What are the ARM (adjustable rate mortgage) advantages?

Answer:

The adjustable rate mortgage advantages can be huge for educated borrowers. On the whole, adjustable rate mortgages (ARMs) allow borrowers to qualify for larger loan amounts and better properties than they could get with fixed rate mortgages.

Adjustable Rate Mortgage Advantages

The adjustable rate mortgage interest is tied to an ARM index - LIBOR, COFI, COSI, MTA, etc. However, hybrid adjustable rate mortgages start with low fixed rate for several years and later adjust upwards or downwards according to the ARM index. Borrowers who expect to move out of the house in several years can take advantage of adjustable rate mortgage 3/1 or 5/1, depending on how long they want to keep the house. As they will be moving out, they don't need to spend money on the principal for a home they won't keep.

Option ARMs are another type of advantageous adjustable rate mortgages. Borrowers can skip payments, pay minimum or interest only, or make regular principal and interest payments. This allows borrowers to free cash and not worry about mortgage payments for a limited time. However, making less than interest only payments on the adjustable rate mortgage results in negative amortization.

Easier qualifying for a bigger loan is another risky advantage of ARMs. Currently, subprime borrowers who took ARMs have become the largest group of borrowers facing foreclosure or looking for a refinance.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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