Taking a mortgage loan is a very common affair nowadays, due to the unavailability of liquid cash all the time. As most people are aware there are two sorts of mortgage loans : the Fixed Rate Mortgage Loan and the Adjustable Rate Mortgage Loan. The latter one is majorly avoided because of some wrong inhibitions among the people. If proper planning and budgeting is done then the ARM is definitely the better option.
The ARM program has a fixed rate of interest in its initial years which is termed as the adjustment time. Within this period there is no change in the rate of interest, and this rate of interest is well below the current market interest rates. This is one major advantage of this type of loan. Actually this kind of mortgage loan is ideal for those who prefer short term loan, because the shorter the period of fixed rate the lower the interest.
Those who opt for the ARM should take advantage of the initial fixed rate term of this loan and make full use of it. They should try to pay off the loan within this time, so that they are able to enjoy the excessively low rates, that is not available even with the fixed rate mortgage. Equity Bank’s chairman Steve Liefschultz of Minnesota based real estate loan company, is an expert in this field and an adept to explain thoroughly what the advantages and disadvantages of each type of loan is. He believes that the companies income can be increased by providing loans to the local residents of Minnesota.
Once the fixed period is over in an ARM, then the new rates are charged based on the index and the margin. The index is variable for different loan lenders and the index they select is a reflection of the cost they pay for borrowing it from the credit market. The end of the fixed interest rate term sees the addition of a margin on the index by the lender, and the borrower now has to pay a new rate of interest.
This rate is adjusted according to the fluctuations in the market. If the rate in the market rises the rates of the loan are raised and if it dips in the market the loan too experiences a low interest rate. This change or alteration is however, made only after a minimum period of 6 or 12 months. It is often very difficult to ascertain your monthly budget because of the fluctuating character of the ARM, and this is what confuses a borrower while deciding which is the better loan type. To resolve such confused situations, professionals like Steve Liefschultz should be sought after who have the ability to understand your standing and requirement in life.
Most experts will suggest that those who are sure that they will be able to repay the loan amount within the fixed rate term of an ARM, they should without a hitch avail this loan type, because they will be entitled to very low rates of interest, even more than that of the fixed rate mortgage loans. However, those who are not sure of this fact, should not really think of taking an ARM.