Who benefits from an Adjustable Rate Mortgage?
Home buyers looking for the lowest rate and lowest possible monthly payments may benefit from an ARM, especially if you are planning on staying in your home for less than 7 years. A great example is the first time home buyer. Let’s set the stage. Imagine a young couple, they find a cute little home and buy it. If they are typical, in just a few years they will experience job transfers, more income, and (“gulp”) growing families. That cute little home is now very little. If this same young couple pays 1% more for a fixed mortgage vs. a 5-year ARM (where the rate is fixed for 5 years), on a $200,000 mortgage, that difference means the couple will pay approximately $10,000 more over those 5 years by choosing the 30-year fixed. Yes, you read that correctly. A 10 thousand dollar difference. That ain’t chump change, my newlywed friends. Also, keep in mind that the average person who chooses an ARM usually moves or refinances before the ARM begins to adjust. In the rare case someone holds ont
