An adjustable rate mortgage, or ARM, can be a great option for new home buyers in Chicago. However, it’s important to make sure that you fully understand this type of mortgage before selecting it. Learn more about Adjustable-Rate Mortgages in this article.
According to Investopedia, an adjustable-rate mortgage is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. With an ARM, the initial interest rate is fixed for a certain period of time. After that, the interest rate resets periodically. The interest rate for an adjustable-rate mortgage is reset based on a benchmark plus an additional spread called an ARM margin, which is described in this article.
Adjustable-Rate Mortgage Benefits
An article from The Balance says that the main reason to consider an adjustable-rate mortgage is because you may end up with a lower monthly payment. Typically, the bank rewards you with a lower initial rate because you are taking a risk. When you select an ARM, you risk interest rates rising in the future. If you compare this to a fixed-rate mortgage, you’ll see that the bank assumes this risk. If the rates rise, the bank is stuck lending you money at a lower rate than the market standard. On the other hand, if rates fall, you can refinance and get a better rate.
Is An ARM Right For You
There are several situations in which an adjustable-rate mortgage is right for you. First, if you are planning on owning a home for a short period of time, an ARM may save you some money. If you are a member of the military, have a young family, or are in the middle of a medical residency, an ARM could be the perfect solution for you. Additionally, if you plan to pay off the mortgage quickly, an ARM could be perfect. If you are expecting some kind of a financial windfall, an adjustable-rate mortgage may allow you to make smaller monthly mortgage payments until you can own the home outright. Finally, if you predict that fixed-rate mortgage rates will drop below ARM rates, an adjustable-rate mortgage may yield some savings. Learn more about when an adjustable-rate mortgage is a good idea in this article from Nerd Wallet.
Deciding which type of mortgage is right for you can be challenging. To learn more about ARMs, reach out to a trusted lender. Meanwhile, Chicago Real Estate Forum is here to help you find the property of your dreams! To learn about all of the available properties in the Chicagoland Area, click here.