How an ARM Can Help You Adjust Your Finances
If you're thinking about refinancing your mortgage, then you may have heard of the term ARM. An ARM stands for adjustable-rate mortgage, which means that the interest rate on the loan can fluctuate over time. While this might sound like a risky option, there are actually a lot of benefits to choosing an ARM for your refinancing needs. In this article, we'll take a closer look at how an ARM can help you adjust your finances and make the most of your refinancing opportunity.
Lower Initial Rates
One of the primary benefits of choosing an ARM for your refinance is that you can often get a lower initial interest rate compared to a fixed-rate mortgage. This can be especially beneficial if you're struggling to make your current mortgage payments and need some relief. Lowering your interest rate can significantly reduce your monthly payment and provide some breathing room in your budget. Keep in mind though, that the interest rate can increase after the initial fixed period expires
Flexibility
Another advantage of an ARM is flexibility in the mortgage. Most ARM loans have an initial fixed rate period, typically between 5 to 10 years, after which the interest rate can adjust annually. This feature allows for more options for those who may be considering moving in the near future. You can take advantage of the lower interest rate for a shorter term and sell your home before the interest rate adjustment period comes into play. You can also use this option to pay off the mortgage early without facing additional prepayment penalties that you would find in a fixed rate loan.
Lower Lifetime Interest Charges
While an ARM can be a gamble if the interest rates increase after the initial fixed period, it requires less interest over the lifetime of the loan if all payments are made consistently. The lower initial interest rates mean that more of your monthly payment goes towards your principal balance in the early years of the loan compared to a fixed-rate mortgage. In some instances, even if the interest rate adjusts upward later in the mortgage, you may still come out ahead in total interest charges over the life of the loan.
Summary
In summary, an ARM can be a great option for those looking to make a financial adjustment. The lower initial interest rates can make it easier to manage your finances and provide some much-needed relief to your budget. The flexibility it provides can help you take advantage of real estate opportunities and refinance your mortgage more effectively. And finally, the lower lifetime interest charges can help you save money over the course of the loan. As with any mortgage, take the time to understand the terms, potential rate adjustments, and what you can realistically afford before choosing an ARM.
- Lower initial rates compared to fixed-rate mortgages
- Flexibility for those considering moving or paying off their mortgage early without prepayment penalties
- Lower lifetime interest charges over the course of the loan
Overall, an ARM can be an excellent way to adjust your finances, but it's essential to understand its specific terms before making a decision. Consult with a mortgage professional who can provide guidance and help you choose the best refinancing option for your particular situation.