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.

Recommended helpful present and future homeowners links:
Why: Refinance to a fixed rate loan while mortgage rates are still low.
Link:
Why: Because FHA loans are insured by the US Federal Government they have very competitive interest rates and are easier to qualify.
Link:
Why: Know and protect your credit report and score.
Link: See All 3 National Credit Scores & 3 Reports Instantly, Online & Free
Why: Find your next home and save money.
Link: Search thousands of foreclosures. Free 7-day trial.
Link this QnA Print del.icio.us Digg
Was this Mortgage QnA helpful?
Not at all
  • Currently 3.1/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
 Definitely
Add to this Answer

Mortgage QnA is not a common forum. We have special rules:

  • Post no questions here. To ask a question, click the Ask a Question link
  • We will not publish answers that include any form of advertising
  • Add your answer only if it will contrubute to the quality of this Mortgage QnA and help future readers
If you have trouble reading the code, click on the code itself to generate a new random code. Verification Code Above:
Bookmark and share this QnA:

Common misspellings: mortage and morgage