We are preparing to purchase a home. How do we determine if an ARM is the right type of mortgage loan for us?
The question about determining whether or not to select an adjustable rate loan or a fixed rate is really just simple math. The most important question to consider is the length of time they intend to keep the loan. Since the interest rates are usually lower for adjustable rate loans than fixed rate loans, the monthly payments will be lower. For example, a 30 year fixed rate P&I payment would be $738.86 for a $120,000 loan with an interest rate of 6.25 percent. On a 5-1 ARM, the interest rate would drop to 5.875 percent, and the P&I payment would only be$709.85 per month. In the event the event the home is sold within the five-year period, our clients would have saved $29.01 every month they had the loan. In the sixth year, the rate could increase to 10.875 percent, and the P&I payment could go up to $1,131.47 per month! In this case, the monthly savings for the first five years would soon be given back. While no one knows what the future interest rates will be, it should be noted that
