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Adjustable Rate Mortgages - The PROS & CONS

Now that you know what an ARM is and how it works, you may be wondering what the advantages and disadvantages are. So let’s explore that issue.

Offering adjustable rates allows lenders to transfer part of the interest rate risk from themselves to the borrower. If you get a fixed rate mortgage and the interest rate then goes up, it costs the lender money. However, if you have an adjustable rate mortgage, as the interest rate goes up, so does your payment, thus compensating the lender. Adjustable rate mortgages are particularly useful when unpredictable interest rates make fixed rate loans hard to get.

One of the main advantages of an adjustable rate mortgage is that the initial interest rate is lower than that of a fixed rate mortgage. A lower rate means lower payments, which may help you qualify for a larger loan. This is an important detail if you expect your future earnings to rise. In this case, the ARM will allow you to qualify for a larger loan amount earlier rather than later.

However, this information should only be used with care. If you use an ARM to qualify for a larger loan amount than a fixed rate would allow you and the interest rate then rises drastically or your income doesn’t rise, you may not be able to afford the larger monthly payments, thus causing you to default on your loan.

A situation in which an adjustable rate mortgage makes sense would be if you are only going to keep the house for a short period of time. If you are only planning to own your house for only a few years, the risk of the interest rate rising goes down. This means that you will get a better rate with an ARM, making it a good choice. However, if you plan on staying in your home for a long period of time, a fixed rate may be a better option.

The lesson here is to have a plan. Know what your goals are in purchasing a home and plan for all eventualities. Do your research when shopping for an ARM and consider the worst-case scenario.

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Testimonials

5/18/2016 Aloha Lance! Thank you all for your “local kine” support of the Big Island Chocolate Festival this year. It was really very successful and your support helped us keep the ball rolling as we brought tickets in. I will let you know how much was raised for the schools, but wanted you to see this online news story that mentions your sponsorship. Hawaii 24/7 has quite a large readership. Thanks again! http://www.hawaii247.com/2016/05/15/big-island-chocolate-festival-names-top-confections/ Julie Ziemelis-Owner Ziemelis Communications Integrated Communications Expert-PR
2/29/2016 In 15+ years of Hawaii Mortgage Company dealing with thousands of realtors, it is very rare when you come upon agents who really care and love what they do and want to make the transaction as wonderful as possible for all parties involved. Lance and Kimi go above and beyond for their clients and the mortgage professionals (like us!) who they are working with. In a world full of mortgage regulations, Lance and Kimi make sure to keep everyone on track of the timelines to ensure closing on time, which benefits both the sellers and buyers. We are lucky to work with them and look forward to many more transactions together in the future! Maura K. Shannon Manager / Mortgage Loan Originator NMLS #339190 Hawaii Mortgage Company NMLS #232582 443 Portlock Road Honolulu, Hawaii 96825 Tel: 808-988-6622 Fax: 808-988-7722 Maura K. Shannon
1/18/2016 I recently referred a client to Lance and he was spectacular. I refer a lot of agents outside of my market and Lance has by far been the most impressive I've ever had the pleasure to recommend. He has his thumb on the market and he is a master communicator. He is extremely good with follow up and he is one step ahead; just as you are thinking you want to reach out to check in with him, you'll find an email with an update answering the questions you hadn't even asked yet. He is everything you'd expect in a high performing professional and more. Plus his great personality makes him fun to work with. I'm truly impressed beyond all expectations. Jana S. Realtor Seattle WA.
10/14/2015 Lance Owens is the one of the best realtors in Kona. He has done a couple of my real estate purchases and is always above board on expectations and knows the Kona market as well as anyone. He has helped tremendously in getting the right deal at the right price. He is always available and very generous with his time, a gift when you are as busy as he is. Lance is trustworthy to handle your biggest investment. Bop P. Tampa, Florida
10/7/2015 I have personally known Lance for over 20 years... Even before he became a realtor! Lance is not your typical realtor. His ethics, integrity and work ethic are second to none. He and his partner Kimi are dedicated to work hard on your behalf... Not just out to get a commission! I would recommend Lance if you really want to get the best offer on your property and I would definitely use him again as my real estate agent!!! You will not be disappointed! I give Lance & Kimi 10 stars! Vicki Y. Honolulu, HI
Lance gives 100% always...we were lucky and grateful to be able to work with him several times! We liked the fact that he is honest, trustworthy, & always looking out for the best interests of his clients. At times the buying or selling process of a home can be a headache. Lance always has a demeanor that seems to make any situation positive. He exceeded our expectations and along the way gained our friendship. We would recommend Lance to our family and friends any day!!! Thanks ---Lance!!! :) C&D L H.O.V.E. HI
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