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Advantages and Disadvantages of Adjustable Rate Mortgages

Home » Real Estate » Should I get a Fixed or Adjustable Rate Mortgage? » Advantages and Disadvantages of Adjustable Rate Mortgages

Just as with fixed rates, there are obvious advantages and disadvantages to adjustable rate mortgages that you will want to take a look at.

Advantages of Adjustable Rate Mortgages

• Since rates are usually low to begin with buyers can afford to purchase a larger home with the expectations that their income will rise with the payments.
• If you don't plan on living in an area too long or plan on "moving up" adjustable rates offer the ability to pay less while you are there.
• If rates fall, there is no need to refinance to cash in on it. As they fall so will your payments.
• In the time period when borrowers are paying less, they can use the extra money to make more profitable investments. Also, more people need some extra money when their career is just beginning or they are just starting out. Fixed rates free up that money and hopefully will rise with income.

Disadvantages of Adjustable Rate Mortgages

• If rates hike up, so do the monthly payments whether you are ready or not and for the most part, the rates are totally out of your control. You are at the mercy of the market, good or bad.
• Typically people find adjustable rate mortgages harder to understand and it makes budgeting more difficult since you have to adjust to rising rates.
• Borrowers can be sucked into the idea of the initial low rates and make a bad deal. While everything seems sunny while payments are low, if they did not choose one with realistic caps or did not plan properly, the first adjustment might come as a shock to not only them, but their bank account!

There are so many things to consider when choosing between a fixed and adjustable rate mortgage. Try to play out all the possible scenarios dealing with the advantages and disadvantages of each and how they relate to your situation. With a little luck and a whole lot of research, you can make the right choice. Don't forget to check out the internet. There are tons of sites where you can calculate how much of a loan you can qualify for, compare loans from different lenders, and find rates in your area.

Sources:
www.bankrate.com

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