The interest rates on an adjustable rate mortgage are usually about one half of a percentage point than a fixed rate mortgage of the same term and originated at the same time. How, then, can an adjustable rate mortgage cost me money?
Adjustable Rate Mortgages Will Save You Money
An adjustable rate mortgage will save you money as long as the interest rate is lower than the interest rate which you can get on a fixed rate mortgage. You will save money when interest rates are declining or stable. .In today’s economic climate, with the present interest rate environment, an adjustable rate mortgage will save you money when compared to a fixed rate mortgage.
When Will An Adjustable Rate Mortgage Cost You Money?
The only time that your adjustable rate mortgage will put you in financial jeopardy is when interest rates are rising rapidly. In most situations you will be able to refinance out of an adjustable rate mortgage into a fixed rate mortgage at the prevailing interest rates. When interest rates are beginning to increase slowly, you can usually refinance into a fixed rate mortgage and end up paying only a slightly higher interest rate. If interest rates are rising rapidly, you get caught and not be able to refinance at an attractive fixed rate of interest.
Worst Case Scenario
If you took out your adjustable rate mortgage, with its lower monthly payment, just in order to qualify for the loan, you need to pay close attention to mortgage interest rates. If they begin to rise even slightly, you may not be able to qualify for a fixed rate mortgage at a slightly interest rate and higher monthly payment. If that is the case, you will be forced to remain in your adjustable rate mortgage and watch helplessly as mortgage interest rates rise and your monthly mortgage payment climbs steadily upward. Then the adjustable rate mortgage that was originally saving you money will end up costing you a lot of money in the long run.
Related posts:
- How Can I Keep An Adjustable Rate Mortgage (ARM) From Going Up?
- Is An Adjustable Rate Mortgage My Best Bet?
- What Are the Risks of Adjustable Rate Mortgage Refinancing?
View full mortgage loans post on US Mortgage Rates
Tags: interest rates rise, Worst Case, lower monthly payment, monthly payment
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