Its hard to believe that with all the negative publicity and problems associate with adjustable rate mortgages that they still remain very popular. While they are not bad loans per say they do have a few major hazards associated with them that you need to be aware of. This article will cover those possible problems and look at adjustable mortgages vs fixed rate loans.
The Biggest Problems With ARM Loans
The biggest problems that is associated with variable rate loans is the instability. While a traditional fixed rate loan has the same rate and payment for the life of the loan a variable rate loan does not. Instead it has an initial fixed rate period that lasts a few years, when this expires the interest rate then changes, in most cases it rises.
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To avoid this rise in rate and payment most people just quickly refinance, but that is where the trouble can start. It is possible to get trapped in these loans if for one reason or another you cannot refinance when the time comes. This can happen because your credit fell, you lost your job or your property values fell. Once you are trapped in and ARM home loan foreclosure can sneak up very fast. Before the real estate market crash this was not a concern but is a reality today.
Who Should Use These Types Of Loans
Because they only have a short fixed rate period these loans do have lower interest rates when compared to their fixed rate counterparts. But the fact that you need to refinance them so quickly almost cancels out the saving s you will see. Generally they are best suited for people who will be moving due to a career or lifestyle change or for borrowers that for see a income increase in the next few years and need to save as much as they can right no.They are quite popular with new doctors for this very reason.
Truth be told the average person will do much better using the standard fixed rate loan. With its stability and predictability it is a much safer program to be in and a lot of people with these loans have avoided the foreclosure problem that plagued the nation.
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