Adjustable Rate Mortgages

Written by Tara Peris
Bookmark and Share

Adjustable rate mortgages, or ARMs, are powerful financial tools for home buyers who know how to use them properly. Somewhat more complex than the average home loan package, these flexible mortgages carry a number of distinct advantages. At the same time, when poorly understood or pursued by the wrong buyer, they have the potential to bring financial disaster. With this in mind, it is essential to research the full spectrum of loan options carefully before determining which one is right for you.

If you've ever looked through the newspaper or searched online for a mortgage rate and found a quote that seems impossibly low, the chances are you've seen a quote from an adjustable plan. That is, you've seen the lowest rate possible in a mortgage plan where the monthly payment is likely to change from month to month. This isn't necessarily a bad thing, but you must learn more about how ARMs work before making a decision.

The Basic Premise

The central feature of an adjustable rate mortgage is that it is flexible. Although this has the potential to work to your advantage, it also means that there is a good deal of risk and uncertainty involved. Specifically, your future payments will remain uncertain, as they are determined by market fluctuations. If the market takes a turn for the worse, you run the risk of skyrocketing interest rates and ballooning payments.

Your best bet for determining whether an adjustable package is right for you is to do some homework. The Federal Reserve has a number of reliable websites devoted to understanding the complexities of these packages. Take your time and evaluate the pros and cons carefully before making a decision about what is best for you.

Bookmark and Share