As interest rates start their slow climb, the attention is starting to shift back to adjustable rate mortgages. They absolutely make sense for the right borrower.
Recent data from the National Association of Realtors shows that the average homebuyer is living in their home for ten years. However, almost 75% of loans are fixed rate mortgages over a term of 30 years. If you aren’t staying in your home (or loan) for 30 years, why pay for it?
Because of the increase in rates, the spread between the adjustable interest rates and fixed has gotten larger. For instance, the difference between a 30-year fixed and a 10/1 arm is about .75%. So what does that mean to you?
On an $800,000 loan, the 10/1 arm would freeze your rate for ten years and save you about $400 per month. That’s $4800 per year or $48,000 during the first ten years of the loan !
If you are like most people and not staying in your home for more than ten years, or want to look at creative ways to pay your loan down faster, make what would have been your 30-year payment to your loan and you’ll save even more !
Loans come in all flavors and you might need to think about something besides vanilla ! More important, you should work with someone who offers options.
