The thrill of finding the perfect home can be diminished by the stress associated with finding the perfect mortgage to finance the purchase.
Adjustable Rate Mortgage (ARM) Rhode Island (RI) offers the advantages of lower early payments and possible lower interest rates down the road.
Monthly payments are lower because the interest rate at the outset of the loan is lower than with a fixed rate loan. Because of the smaller payments it’s easier to qualify for an ARM RI and therefore more affordable for many first time and limited income buyers in RI.
While the predetermined interest rate is maintained throughout the duration of a fixed mortgage, the ARM RI fluctuates (after an initial period) according to the terms of the loan. These basic principles of ARM RI remain constant, but the variety of ARM RI offered bears close examination to determine which one best fits the needs of the homebuyer.
A simple 1-year ARM RI starts out with one interest rate which encompasses the first year of the loan. Adjustments are then made at 1 year periods which are configured by evaluating the interest cap (the amount interest can increase on a loan either over 1 year or over the duration of the loan) and the fully indexed rate.
ARM RI can be set at 1, 3, 5, 7, and 10 year initial interest rate periods, with varying terms. The next interest rate adjustment is calculated by comparison to an indicator, such as the yield on a Treasury note. If interest rates level off in the years following the initial interest rate period, the ARM RI will prove to be a good financial move.
Time wise, ARM RI provides an affordable short-term loan with substantial interest savings. Increased interest rates, however, will drive up not only the interest on the loan, but also the monthly payments.
Homebuyers facing larger monthly payments and increasing interest rates may be forced to consider re-financing or face foreclosure. Considering the diversity of the variables, it is vital to carefully examine all possibilities before committing to an ARM RI. Reading the fine print with a fine-toothed comb and knowing all options available helps homebuyers make wise choices.
At Ascent Home Loans, our knowledgeable staff is available 24 hours a day 7 days a week. Visit us online at www.mortgage401.com and let us help you discover the best financing options for you.
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