What is an adjustable rate mortgage and should I take one?
Answer:Often first time homebuyers are not well educated about the variety of mortgage loans and few will know what is an adjustable rate mortgage and how they work.
An adjustable rate mortgage is a mortgage loan that starts with a very nice low rate for limited time. During this fixed period, borrowers also have the option to make regular payments of principal and interest, interest-only payment, or a minimum payment that leads to negative amortization.
It is not recommended for first time homebuyers to jump into the muddy waters of ARMs. Sometimes, borrowers will not understand that they have agreed at closing to a Neg Am adjustable rate mortgage and have $400 added monthly to the principal, which would terrify them later.
To avoid this happening to you, please, talk to a loan officer about adjustable rate mortgages, your budget and housing needs to determine if you could possibly benefit from an adjustable rate mortgage.
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:
| Not at all | Definitely |
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
Common misspellings: mortage and morgage