Adjustable Rate Jumbo loans
A great option that provides a lower interest rate and allows
greater purchasing power. An adjustable rate mortgage, otherwise
known as an 'ARM' is a mortgage program that has a low interest
rate that can adjust up or down depending on current interest
rate.
Some reasons why people may choose an
adjustable rate mortgage.
1. Want to qualify
for a larger home when purchasing.
2. Don't anticipate
staying in the home for a long period of time.
3. Plan on
refinancing your mortgage in the future.
4. Anticipate an
increase in income within the future.
5. Don't believe
that rates will rise for a while or stay the same.
The Margin:
Let's say Jimmy and Lisa purchase a home with a 3/1 arm. For the
first 3 years their interest rate is 4.75%. On the fourth year
interest rates increase to 8.5% due to economic problems. Jimmy and
Lisa are on set salary cant afford a mortgage at 8.5%.
When they purchased their loan, their was a margin on that rate,
the margin being 1.25%. To Jimmy and Lisa's surprise their rate
had only increase to 6.25%. Of course this was a lot more
manageable.
So what to say that the rate wont increase to %8.5 over the next
few years. Unlike professional sports players, there is a cap. If
your cap is 3% then no matter what interest rates do, it could never
exceed 3% above your initial rate.
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