Exploring Adjustable-Rate Mortgages
Will 2024 be the year you buy a home? If you’re anxious about affordability, you’re not alone. Real estate economists predict mortgage rates will drop slightly in 2024, but not enough for real relief. One option gaining traction is adjustable-rate mortgages (ARM). While not without its risks, ARMs can provide relief in a few different ways.
What is an Adjustable-Rate Mortgage?
An adjustable-rate mortgage (ARM) is a home loan with a variable interest rate. With an ARM, the initial interest rate is fixed for a set period. After that, the rate on the outstanding balance resets periodically, at yearly or monthly intervals. For example: a 5/1 ARM has a fixed rate for five years and then resets every year after that. A 5/6 ARM is fixed for five years and resets every six months.
Initial Affordability and Lower Interest Rates
The initial lower interest rate of ARMs can provide you with a more affordable entry point into homeownership. In a housing market where prices have surged locking in a lower interest rate at the outset can lower your monthly mortgage payments, making your dream of owning a home more achievable.
Short-Term Security and Flexibility
ARMs offer short-term security and flexibility if you know you won’t be in the home for more than a few years or if you anticipate changes in income, job location, or household size. If your earnings increase in 2024, you can pay down the principal or refinance to a fixed-rate mortgage. Alternatively, if you experience a loss of income or are growing your family, the initial lower payments of an ARM provide breathing room.
Interest Rate Caps
As mentioned above, ARMs are not risk-free. During the foreclosure crisis for instance, buyers locked in low rates that then reset and caused monthly payments to balloon beyond what they could afford to pay. Today, tighter regulations and increased transparency have mitigated some of that risk. Interest rate caps limit the extent to which rates can increase during specific periods, providing you some predictability and protection against drastic rate hikes.
Larger Loan Qualification
With lower initial interest rates, ARMs can allow you to qualify for larger loan amounts compared to fixed-rate mortgages. This can be advantageous if you’re looking to purchase a larger home or secure a move-in ready property in an area where the housing market is competitive.
Get Connected
While ARMs offer a compelling alternative for those who value flexibility, short-term stability, and potential savings, there are other mortgage loan products available. It’s important to connect with a trusted resource to research all of your options and have your questions answered.
Get started by contacting NE PA Credit Union’s Mortgage Department. Mortgage Loan Officers are available to answer questions and help you find a mortgage loan that fits your needs. Call (844) 429-8725 or complete a contact request form. Equal Housing Lender | NMLS #413341
Mortgage Loan Products:
- Fixed Rate Mortgages
- Adjustable-Rate Mortgages
- Federal Housing Administration (FHA)
- United States Department of Agriculture (USDA)
- Department of Veterans Affairs (VA)
Free homebuyer counseling is available for NE PA Credit Union members from our colleagues at GreenPath Financial Wellness. Certified counselors can help you navigate the homebuying process and make informed decisions.
Source: Article shared by our partners at GreenPathFinancial Wellness, a trusted national non-profit.
