Picking A Home Loan Short Term

Picking a​ Home Loan – Short Term
You’ve found a​ home,​ your credit is​ in​ good shape and you​ have money for a​ down payment .​
So,​ how do you​ go about picking the​ right home loan for you?
Picking a​ Home Loan – Short Term
There are more than a​ few issues that go into picking a​ home loan .​
One of​ the​ key factors is​ the​ amount of​ time you​ intend to​ live in​ the​ residence .​
If you​ expect to​ sell within a​ few years,​ then picking a​ home loan for a​ short term scenario is​ going to​ be relatively easy .​
ARMS – Adjustable Rate Mortgages
Adjustable rate mortgages are very good solutions for short term home ownership situations .​
The advantage lies primarily in​ the​ fact you​ will get a​ much lower interest rate on​ an​ adjustable mortgage .​
This,​ of​ course,​ translates into lower monthly payments,​ which gives you​ financial flexibility for the​ first few years of​ the​ loan .​
Interest rates on​ ARMS are lower than fixed rate loans for one primary reason .​
With an​ ARM,​ lenders assume you​ intend to​ hold on​ to​ the​ home for a​ relatively short period of​ time .​
As a​ result,​ they are willing to​ offer lower interest rates because they don’t have to​ worry about getting stuck with a​ bad rate for 15 or​ 30 years .​
With a​ fixed rate mortgage,​ the​ lender runs the​ risk of​ lending you​ money at​ a​ relatively low rate for a​ long period of​ time,​ only to​ see rates rise later during the​ life of​ the​ mortgage .​
This leaves the​ lender upside down on​ the​ loan .​
Lenders make every effort to​ avoid such scenarios .​
ARMS – Risk,​ Risk and Risk
The disadvantage associated with ARM loans is​ the​ inherent risk .​
With an​ ARM,​ the​ interest rate can be adjusted on​ a​ quarterly or​ yearly basis depending upon the​ terms of​ the​ loan .​
If interest rates shoot up and the​ real estate market cools off,​ you​ may be left with a​ loan you​ can’t make payments on​ and a​ home with nominal equity .​
This is​ a​ nightmare scenario .​
If you’re considering an​ ARM,​ make sure you​ understand how much the​ rate can rise,​ when it​ can rise and what the​ resulting payments will be .​
For short term home ownership situations,​ adjustable rate mortgages almost always make sense .​
While an​ ARM may seem an​ obvious answer,​ just be careful you​ are not stuck holding the​ bag if​ rates shoot up.

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