Lately, adjustable rate mortgages (ARMs) have continued to receive a lot of bad press. In 2006, there will be approximately $2 billion worth of ARMs coming up for adjustment. In the next two years, a total of $5 billion. Many people talk about the negatives of ARMs, but do not mention why ARMs can turn out be br great loans. I will use myself as an example of someone who is using an ARM to its fullest.
I will be the first to admit, ARMs are not for everyone. However, if you fall into the following categories, you may want to consider this type of mortgage.
1: Expect an increase in income? – If you expect your income to increase in the coming months/years, then you might want to consider an ARM. As everyone know ARM’s keep payments low by paying little principle. However, if your income is expected to increase soon, you will have the ability to increase you payments, which will build equity just as fast as a fixed mortgage.
2: Don’t over do it. – People who get in trouble with ARM’s do so because use the product to buy more house than they can afford. If you keep your debt to income ratio in good standing, an ARM should not be a problem.
3: Use the money you save for other investments. – The key with an ARM is to use the money you are not paying on a fixed rate mortgage to invest in other things such as building a stock portfolio, a 401K or an IRA.
4: Don’t ever see the mortgage adjust. – Get a term on the adjustable rate mortgage that is further out in the future than you plan on staying in the property. This way you will never worry about the rate adjusting and will take advantage of the low interest percentage the entire time your in your property.
I believe if you intend to stick to these principles when looking into an ARM mortgage, you will find it to be a very friendly and affordable lending instrument.