Is an Adjustable-Rate Mortgage Right for you?

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Is an Adjustable-Rate Mortgage right for you?

 

When you shop for a mortgage, whether it’s for a new home or a refinance, you’ll soon hear about adjustable-rate mortgages (ARMs). For some, an adjustable-rate mortgage is an automatic no. If that is the case, it is usually for one of three reasons:

  • They’re uncomfortable with any risk;
  • They’re unaware of just how an ARM works;
  • They can predict the future with relative certainty.

While ARMs definitely have their advantages, make sure you understand them before getting into one.

 

How ARMs work

All ARMs start out as fixed-rate mortgages for the first 3, 5, 7, or 10 years. An ARM will appear like this, where the first number in the terms “3/1,” “5/1”, or “7/1” denotes the number of years that the rate will be fixed. Usually the lower the number is, the lower the initial rate. During the fixed period, there is no risk and typically a healthy savings. The second number shows how many years before the rates can be adjusted once that fixed period has expired.

After this fixed period, the rate can fluctuate. The rate itself is made up of both fixed- and variable-rate components. The variable component will be based on some index such as Treasury bonds. This is added to the fixed-rate component set by the lender when you determine your starting rate.

Your decision to obtain an ARM should be based on how long you plan to live in this home. Having reasonable expectations for future sale or refinancing is all it can take to make an ARM worth considering. If you believe that you could be living there for a long time, you may want to consider opting for a fixed-rate mortgage. The reason? If you have an ARM and have to refinance at some time in the future when rates are higher, you might find yourself in a fixed-rate mortgage with a much higher rate.

 

Inside Information

Lenders give you a discounted rate up front because they know the rate will float with the market later on. If you sell your home or refinance again prior to that happening, it’s their loss. You have the advantage here because you control the timing of your next step.

 

Managed Risk

One way to prepare for the possibility of a higher rate and payment later is to pay extra principal each month to reduce your balance faster. If the rate ultimately adjusts up, your balance will be lower and the payment change will be less as a result. As well, you would already be accustomed to paying more.

 

The Bottom Line

A fixed-rate loan provides the certainty that it will never change. An ARM provides a guaranteed savings but for a limited period of time. The best way to decide is to balance your expectations for using any particular loan with the peace of mind that can come from being assured of stability, even if your timeframe changes.

 

ABOUT INLANTA MORTGAGE

Headquartered in Pewaukee, Wis., Inlanta Mortgage was established in 1993. The company has grown to 35 branches in 16 states and over 240 employees. Inlanta Mortgage offers Fannie Mae/Freddie Mac agency products, as well as jumbo and portfolio programs. The company is an agency approved lender for Freddie Mac, Fannie Mae, FHA/VA, FHA 203K and USDA. Inlanta Mortgage also offers numerous state bond agency programs.

In 2016, Inlanta Mortgage was recently named a Top Workplace for a third consecutive year. Inlanta has been recognized as a Top Mortgage Employer by National Mortgage Professional and a Top 100 Mortgage Banking Company and 100 Best Mortgage Companies to Work For by Mortgage Executive Magazine. Inlanta has also received the Platinum Million Dollar USDA Lender Award.

PARTNERSHIP OPPORTUNITIES

Inlanta Mortgage continues to expand its branch network and encourages ethical lending professionals to learn more about our support platform and discover how an Inlanta branch partnership with Inlanta Mortgage is essential to long-term success.

Locate an Inlanta Mortgage loan officer at www.inlanta.com/locations. For current employment opportunities, visit www.inlanta.com/join-our-team/employment-opportunities. Learn more about Inlanta Mortgage branch partnership opportunities at www.inlantapartners.com, call 262-439-4260, or email partners@inlanta.com.

Inlanta Mortgage, Inc. NMLS #1016.

Mortgage Rates & Other News

Mortgage Interest Rates
15-Year Fixed Rate Mortgages Hit All-Time Low

The average fixed rate on a 15-year mortgage fell nationally to an all-time low of 3.13 percent last week, Freddie Mac reported, while a traditional 30-year mortgage rate dipped to near-record low of 3.88 percent.

30-Year Fixed a Full Percentage Point Lower than 2011

According to Freddie Mac, 30-year fixed-rate mortgages didn’t break new records last week, but the average rate did fall to 3.88 percent from 3.90 percent the previous week. One year ago at this time, 30-year fixed mortgages averaged exactly one percent point higher – 4.88 percent.

Adjustable Rate Mortgages

Adjustable-rate mortgages (ARMs) showed mixed results accoding to Freddie Mac, with 5-year ARMs falling from 2.83 percent to 2.81 percent week-over-week and 1-year ARMs rising slightly from an average of 2.72 percent to 2.73 percent in the same time frame.

One year ago at this time, 5-year ARMs averaged 3.73 percent and 1-year ARMs averaged 3.21 percent.

Buying a home? Refinancing? To take advantage of low interest rates, contact a licensed mortgage loan officer near you to discuss your financing options.

Other Economic News

Bloomberg reports that household spending will get a lift from employment and income rises and partly from the fact that we have just seen 4th warmest winter on record in the 20th century. Why should weather matter? Well, reduced expenditures on energy bills mean more money for other expenses.

Reuters reports that, “The spending power of the American consumer is the secret sauce for turbo-charging a world economy that has entered an uncomfortable soft patch.” No pressure Americans, really.

But in all seriousness, we may be on the way to a rosy recovery as recent reports of new jobs and increasing consumer demand may indicate – but many are still concerned with lagging income growth, lagging consumption, higher prices and persistently high unemployment (still at 8.3%).

We wonder what will come of Federal Open Market Committee’s second scheduled meeting of the year and releases of Retail Sales, Producer Price Index, and Consumer Price Index. Coupled with information already available – these reports and forthcoming news from abroad will undoubtedly have economists on their toes.

Inlanta Mortgage offers Fannie Mae/Freddie Mac agency products, as well as a full suite of jumbo and portfolio programs. The company is fully delegated HUD-FHA including FHA 203K, VA, and USDA approved. Inlanta Mortgage also offers numerous state bond agency programs. Review Inlanta’s mortgage loan programs here.

Inlanta Mortgage is a multi-state mortgage banker based out of Brookfield, Wisconsin. NMLS# 1016.