• Search Homes
    • My Account
    • Contact Us

Christina LynchChristina Lynch

Christina Lynch

888-896-5556
agent@stlexpert.com
  • Menu
  • Home
  • About
    • Reviews
  • Blog

These days adjustable rate mortgages (ARMs) are a good deal!

Call to ARMs
“Forget the subprime mess. These days adjustable rate mortgages (ARMs) are a good deal,” reports Ashela Ebeling, Financial Reporter for Forbes magazine, especially for certain well-off home buyers looking to purchase or home owners wanting to refinance.

Many borrowers who purchased houses with ARMs during the subprime boom got hooked into using exploding ARMs; a 2% teaser rate could jump to 8% within two years, even if market interest rates didn’t change. These products are long gone.

Ebeling says, “Today’s ARMs are only a small part of the market, but here’s the surprise: Most don’t adjust for five or seven years,” and that can make sense to buyers looking for exceptionally low interest rates.

Home buyers might ask, “Given that 15-and 30-year fixed mortgage rates are at historic lows, why even consider an ARM?” Ebeling offers “if you pay off your mortgage in a short period you can save a bundle.”

That’s attractive when you plan to move in the next several years or if you want to pay off a big mortgage before you retire.

The biggest savings come if you pay off the loan within the five to seven years before the ARM adjusts, effectively turning it into a very short, very low-rate fixed mortgage.

Ebeling cites a Jumbo ARM example from the experts. “Say you plan to pay off a $750,000 mortgage within seven years. Get a jumbo ARM at 3.125% for the first seven years and you’ll pay $18,000 less interest than if you were to take a 15-year fixed-rate mortgage at 3.75% and pay it off over seven years.”

Learn the lingo – Typically, the most common ARMs are 5/1 or 7/1 ARMs and 2/2/6 or 5/2/5 caps with adjustments pegged to an index. The LIBOR index is among the most common of benchmark interest rate indexes. The 5/1 or 7/1 part means the rate is fixed for five or seven years then the rate will adjust up or down in one-year increments annually.

The 2/2/6 part means the maximum first-year adjustment is capped at two percentage points above the initial offered rate. After that reset the rate can adjust up or down up to two percentage points each year with a maximum lifetime adjustment cap of six percentage points.

Don’t go too short – If you anticipate selling your home in six years take a 7/1 ARM rather than a 5/1 ARM. The difference in monthly payment is minimal and you’ll have some wiggle room to sell your home before the rate resets.

Don’t go too big – ARM rates are lower than fixed-rate mortgages and can reduce your monthly payment. It may be tempting to purchase more house or to refinance for more than your existing principal to get extra cash. Just don’t stretch too much when taking an ARM. You’re still assuming interest rate risk, even if it’s put off for five or seven years.

Share this:

  • Click to email a link to a friend (Opens in new window)
  • Click to print (Opens in new window)
  • Click to share on Facebook (Opens in new window)
  • Click to share on Twitter (Opens in new window)
  • Click to share on Pinterest (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)
  • Click to share on Reddit (Opens in new window)
  • Click to share on Tumblr (Opens in new window)
  • Click to share on Pocket (Opens in new window)

Posted in: investment, Mortgage Watch, Real Estate News, Uncategorized Tagged: buyers market, first time buyer, forecast, housing, housing forecast, market, missouri, mo, mortgage, program, rate, real, real estate, realtor, st louis, st louis home value, st louis real estate, st louis real estate loan

See what our clients are saying!

Still LOVE my home – thank you!!

Lynn B. Ballwin, Missouri

Thanks Jim. I was prepared for a miserable experience. You took the worry and tension out of selling.

John Walsh Seattle, Washington

We had the best experience during the purchase of our first home with Jim. We love it. One of my best friends is a Realtor and I have already told her that when I move, Jim Hurley is the one I work with.

James Fagan Ballwin, Missouri

It was our first home and we spend several months looking. Jim never lost patience. He spent hours educating us and helping us through the process. He’s always smiling and positive…. Linda and Steve Green St. Peters, Missouri

Linda and Steve Green St. Peters, Missouri

I wasn’t really considering buying a new home but one I had looked at before we bought the last one, which I loved, came on the market. I called Jim and we moved 45 days later with no problems. He really cares about the people involved in the process.

Tina and Tom Shinner Kirkwood, Missouri

<< Prev
Next >>

Post navigation

« 2012 Property Tax Bill – Time To Challenge It!
HUD Homes More Affordable Than Ever – $100.00 Downpayment »

Contact Expert, REALTORS

888-896-5556
agent@stlexpert.com

2 City Place Drive, Suite 200 St. Louis, MO 63141

Follow Us:

Featured Properties

Testimonials

default image

Still LOVE my home – thank you!!

Lynn B. Ballwin, Missouri

default image

Thanks Jim. I was prepared for a miserable experience. You took the worry and tension out of selling.

John Walsh Seattle, Washington

default image

We had the best experience during the purchase of our first home with Jim. We love it. One of my best friends is a Realtor and I have already told her that when I move, Jim Hurley is the one I work with.

James Fagan Ballwin, Missouri

default image

It was our first home and we spend several months looking. Jim never lost patience. He spent hours educating us and helping us through the process. He’s always smiling and positive…. Linda and Steve Green St. Peters, Missouri

Linda and Steve Green St. Peters, Missouri

default image

I wasn’t really considering buying a new home but one I had looked at before we bought the last one, which I loved, came on the market. I called Jim and we moved 45 days later with no problems. He really cares about the people involved in the process.

Tina and Tom Shinner Kirkwood, Missouri

<< Prev
Next >>
© 2022 · Expert, REALTORS · 888-896-5556 · Agent Center · Sitemap · IDX Sitemap
Disclaimer - All Rights Reserved by findingstlouishomes.com

Terms And Conditions | Privacy Policy

Log in ·