Don’t Know What an ARM is? Read this…

Adjustable Rate Mortgages (ARMs) may be making a comeback, but there seems to be rising concerns among some homebuyers and industry experts. Memories of the housing crisis in 2008, largely attributed to subprime ARMs, have understandably left many people wary of these types of loans.

However, it’s important to recognize that the ARMs of today are not the same as those of the past. Let’s discuss why there’s no need to fear the return of ARMs and how they can be a sensible financial choice for some homeowners.

First let’s start by pointing out that an increased level of safeguards and regulations are now in place as a result of lessons learned post-2008.  Today, ARMs come with more transparent terms, stricter underwriting standards, and thorough assessments of a borrower’s ability to repay the loan. These measures help prevent the risky lending practices that were prevalent before the housing crash.

The primary advantage of ARMs is the lower initial interest rate compared to fixed-rate mortgages. This feature can be particularly appealing for borrowers who don’t plan to stay in their homes for an extended period. The lower rate in the early years of the loan can result in significant savings, which can be especially beneficial for those who intend to sell or refinance before the rate adjusts.

ARMs can be a suitable choice for borrowers who have a clear understanding of their financial situation and a well-defined plan. For instance, if you’re in a career with frequent relocation or plan to move within a few years, an ARM can offer financial flexibility and lower initial costs. Additionally, homeowners who are confident that they can handle potential rate adjustments or who expect interest rates to remain stable may find ARMs a practical choice.

Rather than fearing ARMs, the key is to approach them with a well-informed perspective. Prospective homebuyers should work closely with knowledgeable mortgage professionals who can provide guidance on the best financing options based on individual circumstances. Understanding the terms, potential rate adjustments, and long-term financial implications is crucial to making an informed decision about choosing an ARM.