Are Adjustable Rate Mortgages Good?

When you are looking to finance your home you must first decided whether an adjustable rate mortgage will work for you financial situation. Often times you will hear people advise against using an adjustable rate mortgage and stick with your standard fixed rate mortgage. However, those so-called experts may not know your particular financial situation.

If you would like to purchase a home but you don't have the standard 20% deposit that most lending institution would like you to have then using an adjustable rate mortgage may be just what you need. Often times because you are not locking in an interest rate the lender will let you slide with less money for your deposit.

If your credit is okay but not great, this may also be a good solution for you. With credit that is not particularly strong most lenders will over look a few flaws if you opt to go with an adjustable rate mortgage. Lenders always weigh the risk you pose of defaulting on the loan, and with a less than stellar credit history they may give you the money but not reward you with a low fixed rate mortgage.

When closing on any loans there are many closing cost that you will have to pay up front and out of your own pocket. These fees include loan initiation fees and points.  If you are going with an adjustable rate mortgage then these fees will be lower than the fixed rate mortgage. Lenders are banking on the fact that they are going to make more money off of you later because interest rate will rise.

One particularly good reason to use an adjustable rate mortgage is if you are not planning to stay in your home for over five years. Say perhaps you are in the military and you move quite frequently. This could be a very good way for you to go. It will save you money up front because you will need less of a down payment and the closing fees will be substantial less. So when you are ready to move you will hopefully have less money spent out of your pocket then if you had used a standard mortgage.

There is really only one downfall to using an adjustable rate mortgage. If interest rates go higher, so does your monthly payment. Your payment could at any time without warning. Most of the time when interest rates start to raise it starts slowly. They usually increase by a quarter of a point at a time. This may not sound like a lot but over the term of the loan it can cost much more then you had anticipated.

Overall adjustable rate mortgages are a great idea if you don't have enough money saved for a great down payment, your credit is a little questionable, you need to save money on closing cost, or you will be living in the home for a short amount of time. If your credit improves or you decide to stay in the home longer you should consider get yourself into a fixed rate mortgage. Interest rates may be at historic lows right now but you never know when that trend will change.