When you decide to purchase a house, you will be faced with the important decision of securing a mortgage. One of the options you will be given at your financial institution is an adjustable rate mortgage, commonly known as ARM mortgages.
An ARM mortgage is just as its name implies - a term mortgage with a changing interest rate at intervals of time throughout the course of the loan. There are several advantages and disadvantages to ARM mortgages, and it is up to you whether the risk involved with an adjustable rate mortgage is worth it, or not.
In some cases, such as when interest rates are at an extremely high point, an ARM mortgage is the best solution for your mortgage needs. If the interest rate is at an extremely low point, then an ARM mortgage is not the best decision to make and you would go for a fixed rate mortgage. However, if the interest rate is floating somewhere between low and high, the decision becomes much more difficult. The risk is if the interest rate will end up higher in a few years or lower, and how it will impact the payments you are making.
Largely, your own financial situation may determine the suitability of an ARM mortgage. The biggest risk is landing a high interest rate in a few years that you will be stuck with for one or two years until the rate is reviewed again. However, if rates fall to a low when your interest rate is reviewed, you could save enough money on monthly payments to allot for a raise in later years.
