What is the advantages to choosing an adjustable rate mortgage rather than a Fixed rate ?

Question

What is the advantages to choosing an adjustable rate mortgage rather than a Fixed rate ?

Answer 1

Poss lower rate, but that is about it. Get a fixed rate for the life of the loan if you don't want to lose your home to foreclosure!

Answer 2

Adjustable Rate Mortgages have their place.

Unfortunately many that have lost their homes were usually in an adjustable rate, but also to begin with were a bad credit risk and borrowed 100%.

The old adage was to ask how long are you planning on being in the home?  3 - 5 years?  Then it would make sense to look into a 5 or 7 year adjustable rate.  In the beginning your interest rate would be slightly lower than a 30 year fixed rate for example and not adjust up or down until 5 or 7 years later.

There are other pros to having an adjustable.  And their are cons.  If you are using a "prime lender" you won't usually have to worry about hybrids or 2/28's etc.  These were the programs many got into trouble with.

Answer 3

The only advantage I can think of is if you do not plan to own the property for a  long period of time. These loans are good for people who are in it for short term only. Also a big issue with the loans is that the mortgage companies like to put prepayment penalties on them. With that if you pay your loan off in either 12-36months you will pay anywhere from 1-3% of your principal. If you are thinking about an ARM make sure they don't slip in this penalty and make sure you read your loan documents before you sign or you will not like what is slipped in there.