Adjustable Rate Loans
Unlike fixed rate mortgages, adjustable rate mortgage loans have interest rates that can fluctuate over time due to financial market conditions. As the interest rate changes, so will the monthly payment. But adjustable rate mortgage options typically offer a lower initial interest rate. The lower initial interest rate is fixed over a period of time, such as the first three, five, seven, or ten years, and after that period the interest rate is adjusted depending on the change in the index. During the periods that the interest rate is subject to adjustments, limits are imposed for both annual and lifetime adjustments. These limits allow you to know up front the maximum amount your interest rate could increase during the life of the loan.
Qualifying for an Adjustable Rate Mortgage
The qualifications for an adjustable rate loan vary depending on the loan option you chose, such as FHA, VA, conventional, USDA, and jumbo loan options. Your credit score, debt-to-income ratio, credit, and down payment amount are factors that affect underwriting guidelines. To obtain specific loan option guidelines and to determine which adjustable rate mortgage options match your goals, contact a loan officer at Park Cities Mortgage. Our hands-on, personalized approach is what our customers have come to expect over the past decades. They know that they can rely upon our guidance.
Advantages of an Adjustable Rate Mortgage
- Lower initial interest rate
- Lower monthly payment during the initial fixed rate period
- Ideal for borrowers who are certain they will remain in their home for only a few years
Disadvantages of an Adjustable Rate Mortgage
- Interest rates may rise over time
- Monthly payments might fluctuate
- Not ideal for long-term homeowners because of the risk that interest rates could rise with time
Is an Adjustable Rate Mortgage Right for You?
Adjustable rate mortgages can come with significant advantages when used in the right situation and when a buyer understands the risks.
Adjustable rate loans might be right for you if:
- You plan to sell your home prior to the first adjustment period.
- You expect your income to rise to offset potential interest rate increases.
- You need a low monthly payment at the outset of your loan.
- You can comfortably adapt to an increase in payment.
Not sure if an adjustable rate loan is the right fit for your home purchase? Learn about our other loan options on our loan options page. For more personalized loan recommendations, contact a Park Cities Mortgage loan officer today.