What to Know About Adjustable Rate Mortgages
Once you reach that expiration date, the FHA ARM loan is subject to adjustments that have limits (compared to non-FHA ARM loans) on the amount and frequency of those changes. An ARM loan is a smart move for some borrowers and a bad move for others. Which is which?
FHA ARM Loans: Good for Those With a Plan
If you’re thinking of an FHA ARM loan, it is wise to develop a plan for how to deal with these rate adjustments. Borrowers who aren’t sure how long they might keep the home for may not be the best candidates for these loans, but you can sidestep some of those issues by applying for an ARM loan with a longer introductory rate period.
FHA ARMs come with one-year intro rates all the way to 10-year introductory rates. The key here will be the lender’s willingness to approve a loan with a longer intro rate.
Sell, Refinance, or Pay Off?
What is a good strategy to use when considering your FHA ARM loan? Getting rid of the mortgage when the first rate adjustment happens or when the rate adjusts to a point you no longer feel comfortable paying.
Selling the home, refinancing the loan, or paying off the loan in full are your options to avoid the adjusted rate when the time comes. Which option is the most realistic for you?
Chances are good that a typical FHA borrower might not be willing or able to pay off the loan in full in such a short time since the longest ARM intro rate is 10 years. Some typical FHA borrowers may be able to sell or refinance instead.
An Arm loan is a bit like investing. You don’t want to ignore that your investment’s value can change the same way the ARM loan interest rate will change.
In the same way you should have an exit strategy for your investments in case things don’t go as planned, have an exit strategy for an ARM loan knowing that a rate adjustment is definitely going to happen. You’ll be glad you did.
Ask a participating lender about your FHA ARM loan options, and don’t forget that unlike some conventional equivalents, there is no penalty for the early payoff of an FHA ARM loan or any other type of FHA purchase loan.
Sometimes It Pays to Refinance
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