Like the saying "Every rose has its thorns," every mortgage has its own risks and benefits. The type of mortgage you get will depend on your personal situation and what you think you "really" need. Here, it's important to think about what a certain type of mortgage loan is used for, since that's what makes the choice between one mortgage loan and another. So, don't choose a loan you think you want just because it has a lower interest rate or lower monthly payments.
Even though it's important to look into each loan and make sure you're getting the best deal, keep in mind that the best loan for you might not be the cheapest loan available at the time. Especially when choosing an adjustable-rate mortgage (ARM), which is known to change.
Advantages of an ARM Loan
As was already said, a lot will determine if an ARM loan (an adjustable rate mortgage) is the best choice for you. People often choose an ARM loan because they like the idea of paying only interest instead of full payments. If you are a property developer or an investor who buys and sells homes, an adjustable-rate mortgage (ARM) loan may be the best option for you because it gives you the freedom to make regular payments that cover the interest on the loan for a few months while you fix up a home to sell it for a profit.
If you only plan to keep a property for a short time and don't want to pay more money for the loan, you should definitely get an ARM loan. Because in this case, the amount of money gained when the house is sold has nothing to do with the amount of money paid for the mortgage.
Problems with an ARM Loan
If you don't make much money or have a tight budget, you may find an ARM loan to be very appealing. Interest rates on an ARM loan are lower than those on a fixed-rate mortgage, and there are many other reasons to choose an ARM loan. For example, short-term interest rates that are fixed at a small amount for a short time, or the option to pay a minimum amount each month that will cover only the interest on the loan.
Even though these offers look good, if you only pay the interest on your loan, you will only add to your debt and not pay anything toward your loan in the long run. Not only that, but if the interest rate can change at any time, you could end up paying more in interest and mortgage payments after the honeymoon period is over because the interest rate went up.
If you are on a tight budget or want to stay in your home for a long time, an ARM can be a very risky choice. A fixed mortgage rate loan is the best way to get a loan for a family home. This choice will make things much more stable. If someone is set on getting an ARM loan, they should think about the risks and choose a capped rate ARM loan instead. That way, if your interest rates do skyrocket, you will at least have a cap on how much your mortgage payment can go up.
