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When is the Adjustable Rate Mortgage a Good Idea for Home Buyers?

By Ann White

For the past few years, adjustable rate mortgages and other non traditional mortgage loans have been blamed as a cause for the credit crunch. While these products may be a bad idea in some situations, they could be a good idea for some home buyers.

When they Put Forth More Equity

When someone puts forth a large down payment is the first situation when an adjustable rate mortgage is a good idea for home buyers. One of the disadvantages of ARM mortgages is that they are less desirable the less money you put down. This is because the spread between the ARM loan and a traditional mortgage decreases as you put down less money. These loans also come with PMI if less than 20% is put down.

When the Mortgage Won’t Be Kept Long

When the borrower doesn’t plan on keeping the mortgage for a long time, getting an adjustable rate mortgage for home buyers is a good idea. Adjustable rate mortgages come with low interest rates, but only for a short period of time. If the buyer strongly feels that they will either refinance the mortgage or sell the home in that time period, getting this loan will be a good idea.

When Rates Seem Stable

When interest rates seem stable, getting an adjustable rate mortgage will be a good idea for home buyers. Adjustable rate mortgages are tied to government based interest rates. These rates tend to go up and down over time based on certain economic conditions, including inflation. If rates seem like they will be stable for a long period of time, then getting an adjustable rate mortgage could be a great idea.

Related posts:

1. When is an Adjustable Rate Mortgage a Good Idea?
2. When is an Adjustable Rate Mortgage a Good Idea?
3. Who Sets The Margin For An Adjustable Rate Mortgage?
4. Why Is A Fixed Rate Mortgage Better For First Home Buyers?
5. What Is The Outlook For Adjustable Rate Mortgages?