Choosing your mortgage payment plan can be quite confusing. Everyone wants the lowest mortgage rate but, don't know whether to choose a fixed or adjustable mortgage rate. Here's a tip: the Lowest Mortgage Rate would be an adjustable rate mortgage on one condition, you plan to take the loan for a short period.
How to Calculate an Adjustable Rate Mortgage?
Prior to calculating an ARM first understand whether you should use this type of plan. Due to the fact that ARM's are short term fixed rate loans, after the fixed rate term is over the rate becomes variable according to the interest rate at that time. Keep in mind that rates fluctuate based on the markets conditions and they may change every month for good or for bad.
ARM's typically run over a 30 year period. If you want to pay off the loan as quick as possible knowing you won't live in the home for a long period of time (up to 10 years) an ARM might be the solution you are looking for. The fixed, lower rate term you choose can be anywhere from one month to 10 years. Naturally, the shorter fixed rate period term you choose, the lower your interest rate will be. Remember to consider the fact that when the fixed term rate is over the rate you have to pay will fluctuate.
Does Good Credit Help Me Get a Better ARM?
When Lending money from any financial institution, your credit score always has an impact on the rate you are quoted. Credit score is however only one of the factors that determines the rate.
Benefiting From ARM
Due to the fact that ARM begins with a fixed lower rate and fluctuates you may benefit greatly from this behavior. First, you pay a lower fixed rate for the period you choose. For example you choose a 10 year ARM with a 5 year fixed rate. During the 5 years you enjoy a low fixed rate. Once the fixed rate term is over you find that the adjustable mortgage rate is actually lower than the rate you were to pay if you were to choose the fixed mortgage rate when applying for the mortgage. This may not stay permanently however; generally speaking, ARM is good for short term loans.
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