What Are Adjustable Rate Mortgages? – They are the most basic type of mortgage available to borrowers looking to buy a house. They’re extremely popular. All of a sudden this type of mortgage has gone from being a product people got away from quickly, to something they hang on to. Why is this?
Well, it’s probably got to do with the ‘no frills’ spirit of the loan, along with the benefits. As opposed to other special offers, like the fixed rate mortgages, tracker mortgages, or discounted mortgages, when the interest rates take a leap upward, these adjustable rate mortgages can benefit from saving money. Lenders have to impose specific criteria in order to protect themselves with the other types, but adjustable rate mortgages don’t call for any special criteria.
The Flexibility Benefit – One very big benefit of the ARMs is the flexibility. With other mortgages enduring penalties and lock-ins, these mortgages leave you to come freely or go freely. Anytime you with to change your mortgage, or even your lender, you can do it, and not incur extra fees.
Low Monthly Cost Benefits – A big advantage here is the cost, at least in the short term, because lenders aren’t trying to lock you in. You aren’t offered some discount over your next five years, so there’s nothing for them to try and recoup. The SVR is in many cases a cheaper way to start than the others.
The Third Benefit – Usually these mortgages have a third benefit, but only if the interest rates drop. That’s when your monthly payments will drop accordingly. But if the rates are at an extreme low, there’s no way for them to go, except up. So whenever these rates increase, then your monthly payments will too.
Over the years the ARMs were viewed by many as a mortgage to get away from quickly. But when the base rates are extremely low, then ARMs shoot up in popularity. They give you freedom, and a chance to save money. Of course, there’s always the possibility that the base rates will rise, meaning more cash layout for you with your adjustable rate mortgage. Again, they have benefits when used properly and at the right time, and they have their down-sides if the market turns against you. You can choose to be safe with a fixed rate, or take a chance on saving, and enjoy the freedom of an adjustable rate mortgage.