These loans are vastly different from fixed-rate mortgages, as they typically begin with monthly payments that are lower than what are initially offered through fixed-rate mortgages. This makes the loan easier to manage financially at first, and it can prove to be less expensive long-term over a fixed-rate mortgage if there are no significant increases in interest rates.
The adjusting aspect of ARMs stems from their periodically changing interest rates that are influenced by an index. Subsequently, therefore payments increase and decrease.
Borrowers considering an adjustable-rate mortgage must take several factors into consideration, beginning with analyzing if they possess sufficient income to cover their payments in the event of interest rates increasing. Next, borrowers must review if they anticipate acquiring any other substantial debts, how long they plan to live in their home and if they wish to pay off their mortgage early.
The initial required payment amount of an ARM will stay in effect for a restricted period that can vary between one month to five years, and sometimes longer. Many ARMs see their rates and monthly payments change every month, quarter, or annually. The time between each rate change is called the adjustment period.
There are several types of adjustable-rate mortgages borrowers can choose from. A hybrid ARM is a loan that is a mixture of a fixed-rate period and an adjustable-rate period. The interest is fixed for a specified period of the loan before converting into an ARM with a pre-determined amount of times it will adjust annually.
An interest-only ARM consists of a payment plan that calls for borrowers to only be required to pay the interest for a detailed number of years. This is a great way for borrowers to ensure they have low initial payments on their mortgage.
Another type of an ARM is the payment-option. It essentially gives borrowers the opportunity to select between several payment options each month and usually has a significantly lower interest rate in its early stages. Within the payment-option adjustable-rate mortgage is a traditional payment of principal and interest, an interest-only payment and a limited payment option.
For more information regarding Adjustable Rate Mortgages in California, Please contact Stonebriar Mortgage today at (214) 669-3307.