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A conceptual look at variable mortgage rates

The Case for Adjustable-Rate Mortgages

Category: Finance

Home prices have been steadily increasing, pushing homebuyers to find loans with low interest rates. They have even gone to the point of applying for adjustable-rate mortgages (ARM). You can apply for an ARM yourself and use a home loan calculator in Utah to see how much you can afford.

It Adjusts Depending on the Market

Adjustable rate mortgages have always been deemed riskier than fixed-rate home loans. This perception might have stemmed from the fact that the low-interest rates of ARMs last only for about least five years. After that, your interest rate can go higher or lower depending on the rate of the broader market.

It Is the Norm

According to some experts, this characteristic of ARMs can actually be less frightening than what others make it out to be. ARMs, for example, have been the popular home loan option in other countries. The only other country that uses fixed-rate mortgages is in Europe.

Income Can Rise Too

Furthermore, even if ARM rates rise after an average of at least five years, you can expect your income to rise after some time as well. ARM interest rates go up because of inflation, and income also goes up due to inflation. You will then have enough to make your monthly mortgage payments, even before your income rises.

Buy a House You Can Afford

Before anything else, you have to make sure you take out an ARM for a house you can afford. Many homeowners fail to budget their income and expenses. This will lead to negative effects when ARM rates begin to increase. You will be able to afford an ARM even beyond its fixed-rate period as long as you place all your costs within a realistic budget.

Applications for ARMs jumped by 40 percent during the second quarter of 2017. Many would-be homeowners have taken advantage of its many benefits. Indeed, an ARM can be less risky than it seems. But of course, you should still evaluate your financial status and what you want out of a loan to wisely choose the right mortgage.