I know, ARMs are evil....or so one would believe.
After all, they accounted for almost 70% of all mortgages issued during the "boom"....but now they are making a come back! They are a bargain now - especially for first time home buyers. If you think about it - the average first time home buyer is in their home 5-7 years. A 5/1 ARM (the most common) is currently at about 3.5% (fixed for the first 5 years) compared to 5% for a 30 year fixed rate mortgage. Even at the 5 year anniversary when it adjusts, it cannot adjust more than 2% so the rate can only increase to 5.5% if you lock it today at 3.5%. Freddie Mac predicts by December they will make up approx. 10% of all loans issued.
Most people shy away from ARMs because of their stigma - they don't seem as "safe" as a 30 year fixed loan. The truth is that ARMs aren't for everyone. It really depends on your situation. They are definitely worth considering if you think you will only be in your home for a few years. Why pay the higher rate for 5 years if you don't plan to stay in the home for the long haul?
The next time you are looking for a mortgage loan - ask about the ARM products!
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