Source: Albany Herald —
As rates on traditional mortgages have risen, a growing number of home buyers are turning to adjustable rate loans in order to save a few dollars. But do buyers risk getting hit with significant increases when that lock expires?
Don’t let any fast-talking mortgage broker tell you otherwise: Signing up for an adjustable rate mortgage is a throw of the dice on the future of the real estate market.
But it’s a gamble that an increasing number of homebuyers are taking. Home prices may be falling, but interest rates are on the rise, which makes adjustable rate mortgages, with their initially lower rates, especially attractive.
Whether ARMs, as these typically 3, 5, or 7-year mortgages are known, are worth the risk is another matter. While they may be the right choice for some buyers, for others, rushing into an ARM could set them up for an unpleasant financial shock down the line, experts say.
How Do Adjustable Rate Mortgages Differ Other Mortgages?
Buyers who purchase a home with an ARM benefit from a lower, fixed rate for the first 3, 5, or 7 years, depending on the loan’s length. (In fact, it is often lower than what you could get on a traditional, fixed 30-year mortgage.) But once that initial period ends, the rate on the mortgage can increase, sometimes substantially if interest rates have risen during the same period.
“This is highly dependent on how long the client is planning on living in the home,” says Matthew Gaffey, senior wealth manager at Corbett Road Wealth Management in Potomac Falls, Va. “If they are fairly sure their stay in their home will be relatively short-lived, the resulting rise in their mortgage payment from a rate adjustment may be fairly irrelevant.”
