What is an ARM (interest only)?
These types of loan programs are getting more and more popular given the hike in the interest rates in the last weeks.
An adjustable-rate mortgage (ARM) generally offers a fixed rate for a limited period of time, often five to seven years. After that, an ARM’s interest rate – and corresponding homeowner monthly payment – can rise or fall depending on the market.
An ARM can offer great benefits to the buyer as a lower interest rate. Lenders can offer a lower interest rate because the borrower has given them permission to increase their future interest rate. Although, rates can go down also. However, any interest rate guessing in the future is a risk.
Generally speaking, an ARM fixed for three years will have a lower interest rate than one that will adjust in seven years. However, the longer the time the rate is fixed may give peace of mind to the borrower.
Many borrowers today are asking for this type of loan instead of a fixed rate loan if, after pricing, their dream home is out of their reach. And even if the borrower is planning to keep the house for just a short period of time, this could be the right mortgage.
