In 2008 alone, $1.4 trillion of new mortgages were issued. Of course, this was ahead of a crisis that would dramatically change how Americans view mortgages, and the housing market in general. In today’s world, 1.24% of all mortgages are in delinquency, and just 63.4% of Americans own homes — down from 69% back in 2004. It’s understandable that people are now hesitant to take out a mortgage. Nobody wants to be stuck with a mortgage that they can’t afford. With that being said, there are more options on the table than many might think; and one of these options may very well be the right option for you. With that being said, we’re going to look into some of the different options on the table for home loans.
What Are Adjustable Rate Mortgages?
It’s very possible that you’ve already heard of adjustable rate mortgages — and perhaps you’re wondering, “What mortgage is right for me?” Adjustable rate mortgages are often chosen by people who want to buy a home, but can’t necessarily afford the high payments at the time. These mortgages usually start out with smaller interest rates, which means that the overall monthly payment will be lower than that of comparable loans. However, the interest rates will no longer be fixed after a period of time, which means that they can rise or fall. The key here is that the buyers are presumably anticipating being able to afford higher payments in the future — they may be younger, perhaps, and just starting out.
This may seem rather arbitrary, but it really isn’t. The interest rates on adjustable rate mortgages change based on the indexes they are attached to. Indexes are set by the market forces themselves, and are published by a neutral party. Furthermore, adjustable rate mortgages can’t skyrocket to out-of-control levels. The interest rates are capped — depending on the mortgages you take out, they can only increase to a certain amount. Of course, it’s possible that this type of mortgage isn’t right for you — but what is the alternative?
Fixed Rate Mortgages Versus Adjustable Rate Mortgages?
When applying for a home loan, you’ll likely be presented with an adjustable rate mortgage or a fixed rate mortgage. Fixed rate mortgages tend to come with higher payments immediately, but the interest rate set at the time of the loan will not change. Although some like the idea that the interest rate on their mortgage will not change, this can bar people from getting the mortgages that they need in the first place. In comparison, an adjustable rate mortgage allows people to buy their homes, and then save money during their early years as homeowners. For that matter, depending on your mortgage, an adjustable rate mortgage’s interest rate may actually go down over time — which can be a huge benefit down the road. Though this isn’t guaranteed, a lot of homeowners like the idea that it is an option with adjustable rate mortgages, while it isn’t with fixed rate mortgages.
Should I Get An Adjustable Rate Mortgage?
Ultimately, the decision of whether or not an adjustable rate mortgage is right for you shouldn’t be taken lightly. Discuss it with your personal banker, and think about what you can afford now, versus what you will be able to afford in the future. Choosing an adjustable rate mortgage does force people to evaluate their earning potential — not just what they’re making right now. However, an adjustable rate mortgage can also help you get the home you want now, while ensuring your future!