Just because the term says “30 years” doesn’t mean you’ll still be paying off the same loan three decades from now. In fact, most modern mortgages get paid off much sooner when the home is sold or the mortgage is refinanced.
Twenty-first century society is constantly on the move. Most Americans end up selling their home or refinancing their mortgage within a few years of closing, so why not take advantage of this agile way of life?
Most modern ARMs are actually “hybrid mortgages,” because the interest rate during the introductory period is fixed. For the first few years, having an ARM is just like having a low-interest fixed-rate mortgage.
Once the introductory period is over, the interest rate begins to regularly adjust according to what the lending rates in the overall economy are doing, which means your mortgage payments could become cheaper or costlier as time goes on.
Alex has done very well for himself as an entrepreneur, but that doesn’t mean he’s not on the lookout for savings. Though he could afford the high payments on a 15-year fixed-rate mortgage, he’s confident that he’ll be selling his home and moving up into a better one in less than five years. Getting a ARM and saving money in the meantime was just good business.
Even though Angela is near the end of her career, rather than the beginning of it like Alex, an ARM was the best option for her as well. Her children have grown up and moved out of her big home, so after she uses the money from her cash-out refinancing to make some much needed renovations, she plans to sell the home and enjoy her retirement.
Christine still has a big family at home, but what she doesn’t have is a big budget. She was initially drawn to the low introductory rate of an ARM, but she ultimately choose a 30-year fixed-rate mortgage instead because she has no intention of moving anytime soon.
Sarah knows there is a possibility she will have to move for her career in the near future, and she also understands that she could refinance an ARM into a fixed-rate mortgage if she wanted to. But what if she winds up wanting to stay in her home and circumstances make it difficult to refinance? A dedicated Loanwise specialist will help her look at every eventuality and make the call.
Most adjustable-rate mortgages are named according to the same basic pattern, as in these examples:
A “5/1 ARM” is fixed for 5 years and then adjusts annually
A “7/1 ARM” is fixed for 7 years and then adjusts annually
A “10/1 ARM” is fixed for 10 years and then adjusts annually