Should you consider ARM for 5 years?
The main draw to 5-year ARM is the low initial interest rate. It typically starts about a percentage point lower than 30-year fixed rate mortgages. This can save you thousands of dollars during the first few years of your loan. According to Bankrate, which is 5 years ARM at 3.90% today.
This works well if you only plan to stay in your home for 5 years or less. However, after that initial period, your payments can increase significantly. That’s why it’s important that you understand your financial limitations and have a clear budget before subscribing to ARM for 5 years.
30-year loans become expensive
The other big reason to consider 5-year ARM is that 30-year mortgage rates are getting too expensive. The average 30-year mortgage rate is 5.539%. This makes the monthly payments even if it is a modest home quite expensive.
with the Average home price In the United States of about $349,816 for 30 years, a mortgage at today’s rates would have monthly payments of close to $2,000. The same 5-year ARM-available rate loan will have payments of only about $1,650 per month — a big difference.
These are not common loans
Another thing to keep in mind is that 5-year ARM is not as popular as other types of loans, so you may have fewer options when it comes to lenders.
If you are considering acquiring a 5-year ARM, make sure you understand the risks and benefits. Weigh your options carefully before making a decision. Talk to a financial advisor if you have more questions.
Now that you’ve known more about ARM for 5 years, what do you think? Is this type of loan right for you? Let us know in the comments below.
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