ARMs or Adjustable Rate Mortgages have fluctuated in popularity over the years. With the lower interest rates on fixed mortgages in the past several years, many people began ignoring ARMs in favor of these safer options.
However, as interest rates slowly start to climb again there is a renewed interest in ARMs…especially the VA Hybrid ARM loans. The zero down payment requirements and much lower rates (for a fixed period of time) the ARMs can be much more appealing. Particularly if you have plans to either pay off the home or move before the fixed rate period ends.
Some governmental statistics have claimed that in January of 2009 0.9% of mortgages were ARMs. Then in November of 2012 the estimates had risen to 3.8% which is quite a difference from the November 2013 figures of 7.4%. Based on these statistics it does appear that more and more people are taking chances on the ARMs being the right choice for them and their family.
The lower ARM rates means that a family is capable of potentially saving more money than if purchasing a home with a fixed mortgage. This becomes even more appealing for active duty service members due to the increased possibility of transfers.
Why the Renewed Interest in Arms?
This past summer the interest rates for the 30 year fixed VA mortgages increased from approximately 3.25% to right at 4.5%. That 1.25% difference can be substantial when considering the price of some homes. This can mean a big different in the 'amount of house' one can afford.
Taking advantage of the ARM rates can assist home buyers in getting a more expensive house; however it does come with risks. Should the buyer not being able to purchase the house during the fixed rate or they do have the intention on staying long term, then the adjustable rates could come back to bite them. It is possible that the rates will adjust so high they may no longer be able to afford the home. With VA Hybrid ARMs, it would take 5 years at 1% increase per year to reach the interest rate cap. So although there is a risk, it is a calculated one more veterans are making due to the low yearly caps.
The Verdict? ARM or Fixed?
The decision is purely based on the individual's needs and dependent on situation. It depends on what your personal story is. Just as every tool has its specific purpose, so do every mortgage product. How long will you need the loan and how much you save during that time could be the deciding factor.
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