Video Transcript
Let's not demonize adjustable rate mortgages. ARMs. They're not some over-the-top risk in the way that the media still loves to portray them. 20 years ago, sure. Adjustable-rate mortgages - they were stacked with prepayment penalties, which raised their costs. With interest only features where the balance never reduces unless you pay extra. Negative amortization where the balance can climb unless you pay extra. But Fannie and Freddie don't do those loans anymore. ARMs today are super basic. The original rate stays in place for some period of time. It's usually five years. And then the rate can change up or down according to predetermined rules so they never spike unannounced or jump to unmanageable levels. They're not even promised to rise. At today's rates, choosing an adjustable rate loan over fixed will save about 0.500 to 0.750 of percentage point per year during those first five years which, some would say, flips the argument around. And would say it's safe to take an adjustable-rate loan because you're saving on your monthly payment. You can decide for yourself. We've got more information about ARMs on the site. The link is in the description. I'm Dan with Homebuyer.com. Happy homebuying.
This Isn't 2005. Mortgage ARMs Are Fine.
Adjustable-rate mortgages (ARMs) have evolved and are no longer as risky as they were two decades ago. Current ARMs typically offer a fixed rate for the first five years, followed by adjustments based on predetermined rules, potentially saving borrowers 0.500 to 0.750 percentage points annually compared to fixed-rate loans.
Video Transcript
Let's not demonize adjustable rate mortgages. ARMs. They're not some over-the-top risk in the way that the media still loves to portray them. 20 years ago, sure. Adjustable-rate mortgages - they were stacked with prepayment penalties, which raised their costs. With interest only features where the balance never reduces unless you pay extra. Negative amortization where the balance can climb unless you pay extra. But Fannie and Freddie don't do those loans anymore. ARMs today are super basic. The original rate stays in place for some period of time. It's usually five years. And then the rate can change up or down according to predetermined rules so they never spike unannounced or jump to unmanageable levels. They're not even promised to rise. At today's rates, choosing an adjustable rate loan over fixed will save about 0.500 to 0.750 of percentage point per year during those first five years which, some would say, flips the argument around. And would say it's safe to take an adjustable-rate loan because you're saving on your monthly payment. You can decide for yourself. We've got more information about ARMs on the site. The link is in the description. I'm Dan with Homebuyer.com. Happy homebuying.
