Achieving your dream of owning a home isn’t out of reach. With all the financing options available, how do you determine which one is right for you?
You may have been told that adjustable-rate mortgages aren’t the right option. But there are some surprising reasons why an adjustable rate could be the right option for you.
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Welcome to Money Tip Tuesday from the Making Money Personal podcast.
If you’re hoping to own a home one day, one thing you’ll need to decide on is what type of financing you’ll choose.
Finding the right mortgage can be difficult and intimidating. There’s no one size fits all solution for financing your new home. One of the biggest questions concerning mortgage options is whether to choose a fixed rate mortgage or adjustable-rate mortgage (also known as ARM).
Though, many people immediately decide they want a fixed rate, because it seems safer, they may be overlooking the benefit that an ARM might provide them.
Ryan Campbell, Mortgage Originator at Triangle Credit Union mentions that many people start out with a negative view of ARMs. He says, “For many people, an ARM is a scary option. They may have heard from friends or family to avoid adjustable-rate mortgages at all costs. But this advice can often be misconstrued, because adjustables might give you the best option for your financing, with the smaller financial burden.” He followed it up with, “Don’t do a loan because someone else told you, do it because it works for you.”
Don’t dismiss ARMs before you’ve first considered the benefits.
Here are some of the surprising benefits of ARMs that you may have not considered and might make you warm up to the idea of using one to finance your house.
Traditionally ARMs offer great terms and rates which tend to be lower than fixed rate options. This also means that the lower the rate, the lower your monthly payment could be. There’s also a chance you can get a longer-term mortgage with an adjustable rate meaning you’ll get a more attractive rate AND a longer term, making that monthly payment even more attractive. For example, Triangle offers a 40-year term adjustable rate mortgage option. This is a great offer because it means you can pay off your loan over 40 years instead of 30 ultimately lowering your monthly payment.
If the word adjustable scares you because you know the rate can go up over time, you don’t have to fear too much. Adjustable-rate mortgages have caps set on how high the rate can adjust. Ryan explains that certain caps are put in place to ensure the rate only goes up a certain amount. It can’t go any higher or lower over the life of the loan. Don’t think that if rates adjust up, your rate will adjust out of control. Figure out whether you’ll be able to continue to afford your payments if your rate adjusts to the max cap, and if you can, then you’ll be prepared for when it does.
Believe it or not, there have been times in history when rates have adjusted lower. If rates are better by the time yours is set to adjust, they restructure at a lower rate. Although this isn’t too common, it’s certainly something you may not have considered when you hear about adjustable-rate mortgages. Pay attention to the economic climate and who knows, you may get fortunate with a rate that adjusts down without having to refinance to get a lower rate.
Get the benefit of automatically adjusting to that lower rate without having to refinance
A lot of times people move from home to home. They either get a new job, retire, or just decide to move away. In the past, paying your mortgage off early meant you would need to pay pre-payment penalties. Now, if for whatever chance you decide to move, or refinance, then you won’t be charged any fees for prepaying the loan. This is a huge benefit if you don’t plan on being in the home for a long time. If you buy a home with an adjustable-rate mortgage but then decide in a few years, maybe even before the rate adjusts, that you want to move, you won’t get slammed with fees for doing so.
If you’ve shied away from ARMs for some time, a few of these benefits might surprise you.
But, how do you know that an adjustable rate is right for you?
Ryan recommends you ask yourself some of these specific questions when you’re considering the different types of loan options.
Ryan also stresses the importance of educating yourself. He recommends you do research to learn how mortgages work. You’ll learn about terms, adjustment periods, how the loans are structured and more.
Learn all you can about the different types of options available, how they work and what you should consider before signing that line.
Ryan shares, “Get educated. Absorb as much as possible. The more you know the better decision you can make. Work with someone who can explain it to you so you can understand the products.”
That’s what Triangle’s Mortgage Loan Originators are there for. They take the time to meet with you and discuss your options to help you get the best mortgage you can.
Visit any of Triangle’s local branches or schedule an appointment online to get in touch.
If there are any other tips or topics, you’d like us to cover, let us know at tcupodcast@trianglecu.org. Like and follow our Making Money Personal FB and IG page and look for our sponsor, Triangle Credit Union on social media to share your thoughts.
Thanks for listening to today’s Money Tip Tuesday and be sure to check out our other tips and episodes on the Making Money Personal podcast.
Have a great day!
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