Most people who are buying their first homes have heard of adjustable rate mortgages (ARM). However, because of so much misinformation, many don't fully understand how these types of loans work. In addition, they may not understand that these types of loans can be better than other loan options depending on the price of the home that is being purchased.
With a 5/1 or 7/1 ARM, the interest rate on the mortgage is fixed for either the first five or seven years. After that, the interest rate on the mortgage can increase at various intervals. While this may seem like a problem, it can be the best option for those who are buying a home with a mortgage over $300,000. This amount, which is known as a jumbo loan, can have different rules because of the large amount of money being financed.
Often a jumbo loan requires a larger down payment. The fixed interest rate for the first five or seven years gives the home owner a lower payment at first to take care of expenses in the first few years. After the initial expenses, the monthly payment can increase and not be a burden to the homeowner.
This, of course, is only touching on the issue of adjustable rate mortgages and even jumbo loans. For more information about which type of loan may be right for you, contact Downs Financial. We will be happy to carefully explain all possible options and get you the mortgage that is right for you.