When you’re considering home loans, one of the first decisions you’ll need to make is whether you want a fixed- or adjustable-rate mortgage. It’s important to understand the options and what advantages and disadvantages each could provide for your situation.
While fixed-rate loans are easier to understand—after all, they stay at the same rate as long as you have them—adjustable-rate mortgages (ARM) can be a bit confusing. So, here’s a little explainer that could help and some of the pluses and minuses you may want to consider.
What Is an Adjustable-Rate Mortgage?
As the name makes clear, the interest rate you pay on this type of mortgage changes during the course of your repayment. Also called variable-rate mortgages, these offer a fixed rate for the early years of the term, with the exact amount dictated by the type of loan you get.
We offer 3⁄1, 5⁄1, 7⁄1 and 10⁄1 adjustable-rate mortgages, with the first number indicating how many years the rate is fixed and the second reflecting how often the interest is adjusted.
In the case of all the ARMs we offer, the rate is re-evaluated on an annual basis. Many such mortgages put a cap on rate increases that is specific to each adjustment or covers the life of the loan.
How the rate is adjusted varies between loans, so it’s a bit challenging to explain generically. The adjustment is based on a variable index, such as the maturity yield on 1-year Treasury bills and the London InterBank Offered Rate (LIBOR), plus a set margin.
2 Pros of Adjustable-Rate Mortgages
2 Cons of Adjustable-Rate Mortgages
When it comes to finding the right home loan for your situation, the experts at Journey Home Lending are ready to help. We have the knowledge and industry experience to help you understand your options.
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