Adjustable rate mortgages are very tempting to home buyers, especially when the interest rate at the time is quite high. However, they also come with a great deal of uncertainty.
Fixed rate mortgages offer interest rate security and consistent mortgage payments, but they are most often more expensive. Weighing the advantages and disadvantages of adjustable rate mortgages versus fixed rate mortgages is important when you are looking to secure a home mortgage loan.
One of the primary advantages and tempting features of an adjustable rate mortgage is that they feature a much lower interest rate for the first term of the loan before the first interest rate review. Lenders are much freer to offer lower interest rates when they don't have to guarantee a rate for the entire life of the loan.
The lower interest rates can offer the home buyer the opportunity to purchase a more expensive home when qualifying for monthly payments. The biggest downfall of adjustable rate mortgages though is in this exact instance-if the interest rate is higher when the loan comes up for an interest rate review, the payments could increase substantially and this means that the home owner could struggle with the payments.
However, if interest rates fall to an all-time low, adjustable rate mortgage borrowers can take advantage of the rates without having to pay the fees associated with refinancing the mortgage.
Adjustable rate mortgages can be very confusing. It is important to ask as many questions of the lender as possible when applying for an adjustable rate mortgage to ensure that you know what you are potentially getting yourself into in the future of the loan.
