Conventional Adjustable Rate Mortgages
The drive to have a home, a place to call your own, a safe refuge: it’s an instinctual drive as old as humanity itself. While it’s true that man has long since come down from the trees and advanced into the modern age, this urge for home ownership is as powerful today as it ever was. However, the average modern man must get a mortgage to buy his home, and there are a lot of choices. The conventional adjustable mortgage is one of the most common.
What is a Conventional Adjustable Rate Mortgage?
A conventional adjustable rate mortgage is simply a standard mortgage with a twist: the interest rate can fluctuate, based on the market. As a result, your mortgage payment may change every year or so. Rates and terms vary, depending on your lender and your specific financial situation.
How Do Conventional Adjustable Rate Mortgages Work?
- Your interest rate will change throughout the life of your mortgage, and as a result, your payments will change, too. But there are rules and guidelines in place regarding how often, and how much the rate can vary.
- Conventional adjustable mortgages begin with a fixed interest period. For the first several years of your loan, your interest rate cannot change. The fixed interest period can last three, five, seven or even ten years.
- Terms vary, depending on your credit worthiness, but your interest rate (and therefore, your mortgage payment) may change as often as every year, once the fixed interest period is over.
Your Interest Rate Has Caps
- Federal laws place caps on conventional adjustable rate mortgages. These caps limit the amount that your interest rate can increase from one adjustment period to the next.
- Federal law also caps the amount that the interest rate can increase over the entire course of the loan.
- The amount of the interest cap on your loan depends on federal law and your own financial profile.
Why Choose a Conventional Adjustable Mortgage?
This type of mortgage is not the right fit for every home buyer, but it does offer some specific advantages:
Lock in a lower payment for the first few years. Buyers who have credit issues or difficulty qualifying for conventional fixed-rate mortgages can often get a lower initial interest rate with an adjustable rate mortgage. During the fixed interest rate period, buyers can fix credit issues and increase income in order to qualify for better rates, then refinance.
Enjoy a lower payment in the short term. Buyers who expect to move within five years might do well with a conventional adjustable mortgage. They’ll enjoy lower initial interest rates, and then sell the home before the rate can adjust.
Get Advice About Conventional Adjustable Mortgages
When it comes to funding your home purchase, conventional adjustable rate mortgages are just one of the “bread and butter” type tools in a borrower’s bag of options. Get advice from one of the loan specialists at Beam Lending to see if this type of mortgage is your best option. Fill out our form or give us a call today!