As mortgage interest rates begin to rise, some homebuyers will be looking for an alternative to the thirty year fixed rate mortgage. The truth of the matter is… if used responsibly and for the right reasons, an adjustable rate mortgage could make a lot of sense when financing residential real estate.
If your only reason for considering an adjustable rate mortgage is that you wouldn’t be able to afford the house otherwise, you might want to reconsider your strategy and look for a lower priced house. In fact, many lenders who offer ARMs will only offer you the product if you qualify for the loan using the maximum interest rate.
On the other hand, if you’re in need of short-term financing and know that you’ll be relocating within five to ten years, you might want to consider a 5/1, 7/1 or 10/1 interest-only ARM, which typically offers a lower interest rate that’s fixed for a specific period of time.
If the thought of the rate increasing at some point in the future leaves you feeling a little uneasy, don’t sweat it… Stick with the thirty year fixed rate mortgage and get a good night’s sleep.