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February 25, 2013In adjustable rate mortgage or variable rate mortgage is quite different from the fixed rate mortgage. In this type of mortgage your interest rate is determined based on the prime value. If the index value climbs up then that month your premium will be more. Since it is tied to the financial market you need to be watchful and should stay updated otherwise you will end up with the great danger.
Getting a mortgage with the adjustable mortgage rates is actually a good idea when the mortgage trends forecast the current high interest will come down in a year or two. Why is it so? Now let’s learn by taking the fictitious numbers for illustration.
When you need to consider the arm mortgage?
Let’s say the interest rate posed on the fixed rate mortgage is 15% now this interest rate expected to fall below 9%. That is it may even reach a single digit in the upcoming year. Then in this case if you have enrolled in the fixed interest rate then you need to continue to pay the high double digit interest on the mortgage whereas those who have obtained the mortgage through arm mortgage can enjoy the low interest rate. Regardless of the economic condition, in the ARM mortgage initially the interest rate will be low so if the prediction is correct you can continue to pay the low interest rate in the rest of the years.
So by taking up the adjustable mortgage at the right time one can save significant amount of money spend on their monthly mortgage repayment. You can use it either for saving or you can you it to pay off the principle amount. Both are beneficial. Likewise these arm mortgages have gained its popularity at the time of very high mortgage interest rates.
Is switching to fixed rate mortgage is necessary?
But the present financial scenario is entirely different. Due the low demand and economic crisis the demand for mortgages came very low. So the interest rates also came down. Now you don’t even need to consider the variable rate mortgage. You can negotiate on the interest rate if it is possible. When you compare the interest rate of fixed mortgages with the arm mortgage it will be low. Apart from the prime rate, due to the low teaser rate you can enjoy really a low interest rate by sign up with the adjustable mortgage rate. You can continue with this mortgage until the interest rates are low. When it starts to climb then you need to convert it into the fixed interest rate mortgage. It is important to lock in the rate when the interest rate is low.
If you feel it as a good plan then before sign up with the arm mortgage program ensure they will not impose any conversion fees in the future so that you can save the whole lot money from your savings just for the refinancing.
Anyhow mortgage lenders and banks will act very clever. They will not lose the interest rates as easy as you think. So one safest option suggestible is, “obtain a fixed rate mortgage and try to lock the interest rate when you find it is low”. If you manage to get a mortgage with the significant low interest rate you can buy a big home with the same affordable monthly payment. Since the market is very good for the home buyer you can easily get low interest rates on your mortgages.
