New Jersey Adjustable Rate Mortgage

Written by on January 10, 2012 in Types of Mortgages - No comments
Adjustable Rate Mortgage Loans – New Jersey Homeowners Often Fear Them, but Should They?

Adjustable Rate Mortgages, or ARM’s as they are often referred to as, have been around for several decades now.  Since the mortgage collapse a few years ago ARM’s have taken a beating when it comes to their reputation.  While some of this negativity is warranted there are also many good uses that homeowners can benefit from when taking an adjustable rate loan.

ARM loans offer great flexibility to those who are self employed or get paid larger bonuses once or only a few times per year.  ARM loans allow you to keep your payment low and pay down loan principle on your own schedule.  This is even more true for ARM’s that carry an ‘interest only’ payment feature.

Interest Only ARM’s

Interest Only ARM’s are exactly as they sound.  You only pay the interest you have accrued on a monthly basis.  While this means your loan amount does not reduce, it does mean your payment will be much lower than with a traditional fixed rate fully amortized mortgage.  Those who are paid a small portion of their income monthly yet receive a large portion of the income on a yearly basis can benfit from this type of loan payment.  It enables them to keep their monthly mortgage obligations low and pay down large portions of their princiapl when that income is available.

While payment flexibility is often the most discussed benfit or ARm mortgages, it can also be advantageous for people who only plan to live in their home for a shorter perios of time.  If you are planning on living in your home for 5 years, you can take out a 5/1 ARM loan.  This means the loan will stay at a fixed rate for 5 years followed by the potential for the rate to adjust each year thereafter.  There are also caps put in place for how much the rate can change each year after the initial fixed 5 years have expired.  Those knowing they will sell after 5 years can benfit from a great deal of interest savings over the 5 years they made payments on their 5/1 arm loan.

The negative aspect of Adjustable Loans is the unpredictability of interest rates.  Numerous economic factors play a part in what interest rates will be at any given time.  Without a crystal ball we never know if those rates will be up, down, sideways, or how fast they will move.  Prior to taking an Adjustable Rate Mortgage it is important to make sure the benefits outweigh the potential negatives.  Make sure you discuss this with a financial professional prior to taking on this type of mortgage loan.

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