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Why Lenders Should Market the Adjustable Rate Mortgage (ARM)

Over the last ten years, the adjustable rate home loan, also known as the “ARM” has been demonized. In some cases, rightfully so, because when the financial markets crashed in 2007 and 2008, many first time home buyers had committed to a loan with a variable interest rate that only met their needs temporarily because the introductory payment was low enough to help them get into a home. The only problem was that as soon as the interest rate started adjusting, the homeowner suddenly could no longer afford their house. Millions of Americans lost their home in foreclosure and the “mis-marketed” “ARM” did play a role in this home financing crisis. However, the ARM does make a lot of sense for a fraction of new home buyers and homeowners that look to maximize the advantages of the adjustable mortgage. Therefore lenders, brokers and loan officers should consider purchasing adjustable mortgage leads, because it’s a great niche when sold to the right prospect. If you are a borrower that does not plan to stay in the home for very long, the ARM, enables you to save money because the interest rate on a 1/1, 3/1 or 5/1 ARM are lower than the 15 or 30 year fixed rate. If you end up changing your mind and keep your home than it would make sense to refinance the ARM into a fixed rate mortgage prior to the period in which your rate becomes variable.

Your mortgage will be one of the biggest responsibilities of your life, and making sure that you meet the monthly payments is the key to maintaining good credit history as well as your home itself. Thanks to the housing market crash of the early 2000s, a lot of bad press was placed on one particular type of mortgage loan – the adjustable rate mortgage. And while it's true that these types of loans aren't for everyone and that they played a role in that economic downturn, the fact is that taking out an ARM is still a good call for many people.

The key is knowing whether or not it's right for you and figuring out what the strengths and weaknesses of it are. Here's a look at some of the key things to understand about it.

  • An adjustable rate mortgage will almost always begin with a lower interest rate than fixed mortgages – sometimes significantly lower. That's part of what has made them so attractive in the past.
  • That lower interest rate means that your monthly mortgage payments could start out being much lower than they would be with a fixed rate mortgage. This can save you a lot of money in the short-term.
  • However, over time those interest rates can change significantly. After several years, your rate could be higher than fixed rate mortgages, which means you'll also have higher monthly payments to make.

So, in short, it comes down to a time factor. Initially, ARMs have lower interest rates and lower monthly payments while the security and stability of a fixed-rate mortgage means you don't suddenly face a higher rate later in the mortgage's life. So just why should people consider an adjustable rate mortgage?

Those who are a good match for an ARM are those who aren't planning on staying in their home for decades, simply put. Whether you're planning a move later in life or are buying an investment property that you plan on selling in a few years, an adjustable rate mortgage's low initial interest rates and payments means that for that short time you own the home you're able to enjoy lower payments than you would if you went with the more traditional fixed rates.

With that in mind, you should take a close look at your plans and your goals with any home and home loan. How long are you planning on owning the property, and are you able to make higher mortgage payments if the rates balloon for a few months without warning? Normally, ARM rates will rise gradually but on occasion they can increase or decrease significantly. Being ready for this is important as well.

Simply put, an ARM is a good call for a lot of people, and one that could save you a significant amount of money depending on your situation. Review all of your options and take a close look at your situation, and you should be able to determine exactly what you need from your loan and whether or not an ARM is the right call for you.

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