adjustable rate mortgage Archives | First Western Trust Mortgage

As the housing market continues to remain strong, more and more people are turning to adjustable rate mortgages (ARMs) as their preferred option for financing their homes. Despite other mortgage options seeing a decline, ARMs have experienced a surge in popularity over the past year. So why exactly are adjustable rate mortgages gaining favor among homebuyers? Let’s take a closer look.

What is an Adjustable Rate Mortgage?

An adjustable-rate mortgage, also known as a variable-rate mortgage, is a type of home loan where the interest rate can fluctuate over time based on market conditions. Unlike fixed-rate mortgages, which have a set interest rate for the entire duration of the loan, ARMs typically have an initial fixed period (usually 5-10 years) and then adjust annually based on an index. This means that borrowers can take advantage of lower interest rates if they occur, but they also run the risk of their payments increasing if rates rise.

The Appeal of ARMs

So why are more people choosing adjustable-rate mortgages over other mortgage options? One reason is the initial lower interest rates offered by ARMs. During the fixed period, the interest rate on an ARM can be significantly lower than that of a fixed-rate mortgage. This can lead to lower monthly payments and make homeownership more affordable for some buyers. Another reason for the popularity of ARMs is due to rising home prices. With housing prices increasing, homebuyers may be looking for ways to save money in order to afford their dream homes, making ARMs an attractive option.

The Risks of ARMs

While there are certainly benefits to choosing an adjustable-rate mortgage, it’s important for homebuyers to understand the risks involved. As mentioned earlier, the interest rate on an ARM can increase after the initial fixed period ends. This means that borrowers may end up paying more in interest over time if rates go up. Additionally, ARMs typically have caps on how much the interest rate can increase each year and over the life of the loan. However, these caps may not protect borrowers completely from significant increases in payments. It’s crucial for potential homeowners to carefully consider their financial situation and future plans before opting for an ARM.

First Western Trust Mortgage’s Perspective

As a leading provider of mortgage loans, First Western Trust has witnessed the rise in popularity of adjustable-rate mortgages firsthand. The company understands that every individual’s financial situation is unique and offers personalized guidance to help clients determine the best mortgage option for them.

In addition to ARMs, First Western Trust also offers fixed-rate mortgages, jumbo loans, and other financing solutions to meet the diverse needs of homebuyers. With over 15 years of experience in the industry and a team of knowledgeable professionals, First Western Trust is committed to helping clients achieve their homeownership goals.

Conclusion

The surge in popularity of adjustable rate mortgages in the past year can be attributed to various factors such as initial lower interest rates and rising home prices. While ARMs may provide some financial benefits, it’s important for homebuyers to carefully weigh the risks involved before making a decision. With personalized guidance and a range of mortgage options available, First Western Trust is dedicated to assisting individuals in achieving their homeownership dreams.

If you’re considering purchasing a new home or refinancing your current mortgage, make sure to consult with First Western Trust for expert advice and tailored solutions. Your dream home may be more attainable than you think with an adjustable-rate mortgage from First Western Trust.

Interest rates remain high for fixed-rate loan mortgages. These market trends could lead to significant increases in monthly payments and debt-to-income ratios for future borrowers. During such times, homeowners looking to refinance a mortgage might benefit from seeking alternative options to traditional fixed-rate mortgages. Through collaboration with a seasoned financial institute, it is possible for homeowners to find lower rates while most of the market deals with a high-interest rate environment.

However, some transitory refinancing solutions or mortgage products may lead to costly expenses in the long term. Therefore, homeowners must understand each available solution before signing on the dotted line. Buyers can tap into several mortgage refinancing alternatives to minimize the toll of high-interest rates.

Apply for Adjustable-Rate Mortgages (ARMs)

ARMs are essentially mortgage arrangements that gradually deviate from a fixed interest rate in home loan refinancing. ARMs begin with a fixed interest rate and adjust across a six-month or annual period. While ARMs once had fixed-rate periods of less than three years, these have increased recently to provide improved financing stability.

For example, a mortgage provider might offer a 7/1 ARM arrangement. Under this agreement, the borrower services a fixed rate for the first seven years and an adjusted final term. In a 3/3 ARM, homeowners service a fixed loan for the first three years and an adjustment for the remaining three years.

Lending institutions can help guide homeowners through various ARM options based on their needs and priorities. While ARMS offer lower initial payments, it is essential to note that future adjustable interest rates can spike based on market and economic changes.

Homeowners should check with their lenders regarding exact ARM practices, as some policies offer cutoff amounts that protect against significant interest increases. Also, it is important for borrowers to make the necessary financial plans for servicing higher-adjusted loans that may occur in ARM arrangements.

Discuss Loan Assumption Options

Buyers who can afford higher cash down payments may consider taking over the remainder of a fixed mortgage term from current homeowners to avoid high-interest market rates. The process, known as loan assumption, allows buyers to take over a property owner’s original term conditions in home loan refinancing.

However, loan assumptions usually involve substantial paperwork to address various changes that originate from the start of the loan. A trusted lender can help sort through the details, such as accounting for the difference between sales pricing and outstanding loan balances.

Leverage Home Equity Line of Credit (HELOC)

A HELOC is an effective method of refinancing home payments during high-interest periods. The revolving loan type allows borrowers to secure a loan against up to 85%–90% of their home equity. According to the Consumer Financial Protection Bureau (CFPB), nearly a million consumers borrowed against home equity in Q2 2022.

A HELOC offers an adjustable interest rate, where borrowers can tap into the funds via a line of credit for an agreed draw period. HELOC draw periods usually span 5–10 years and depend on financial assessments conducted by the lender, which may include a homeowner’s creditworthiness and the home equity value of a property.

The HELOC process lets homeowners leverage their equity without replacing current low-interest mortgages with higher-interest cash-out refinances. While HELOCs can help homeowners leverage their equity in high-interest environments, these lines of credit carry some risks.

It is important to discuss other potential risks and fine print associated with the loan type with a trusted lender before proceeding with the arrangement. For example, since HELOC relies on home equity, borrowers face the danger of foreclosure if they fail to repay the loan based on agreed-upon terms. Also, buyers may feel tempted to borrow additional funds from their HELOC for personal spending, resulting in debts and financial challenges down the road.

Consider Temporary Interest Rate Buy-Downs

Financial institutions may recommend a temporary buy-down for home loan refinancing in high-interest environments. A temporary buy-down usually involves an additional initial payment in exchange for lower interest rates down the mortgage life cycle. Lenders may extend the discounted interest rate for a few years before reverting to the original values.

For example, a borrower might request a buy-down at 3.5% for the first two years of a 15-year mortgage loan with a 5% interest. When opting for a buy-down, it is essential to consider factors like the total upfront cost and buy-down period to determine the best long-term outcome.

Broaden Refinancing Options

Owners may go beyond mortgage refinance options in home loan refinancing by exploring different sales transactions. For example, individuals may consider contract-for-deed arrangements and private mortgages, where sellers and buyers negotiate the interest rates and related terms between each other for a property transaction. These privately settled arrangements may also include late payment provisions and penalty arrangements.

Engaging in these unconventional financing options requires close attention to the legal agreements to avoid balloon payments and other factors that could result in high-interest rates in the long run.

Final Thoughts

First Western Trust offers mortgage services for optimized outcomes across different settings, including high interest rate environments. The experienced team applies years of expertise to personalize banking services and diversify investment portfolios for enhanced wealth planning and strategic methods to refinance home loans. Those who partner with us have access to maintaining a loan within our portfolio loan program. Being a part of our program allows us to underwrite cash flow and be more creative than most brokers which can make a significant difference in helping you obtain the right loan to meet your needs.
Reach out to First Western Trust’s mortgage team to discover the most suitable strategies to refinance your home today.

Tag: adjustable rate mortgage

Adjustable-Rate Mortgages: The Popular Choice in the Mortgage Industry