Interest rates are moving up. According to Lawrence Yun, chief economist at the National Association of Realtors, many potential homebuyers may need to reassess their numbers to ensure they can still afford the purchase. Mr. Yun also said that considering a 5-year ARM system could be an alternative to higher interest rates. Here’s what you should know.
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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