Adjustable Rate Mortgages | ARMs Definition | 3 ADVANTAGES of an Adjustable Rate Mortgage

How's it going everyone? Matt Leighton and welcome back to another video In today's video we're going to touch on the Adjustable Rate Mortgage

I have with me an expert, Rich Conlon with Atlantic Coast Mortgage Rich, why would anyone choose an ARM? An Adjustable Rate Mortgage? I see a fixed rate mortgage, that's the one you see most common in the newspaper, online, if people are still reading newspapers for their mortgage rates Let's do 3 advantages of — the top 3 advantages of Adjustable Rate Mortgages I think we can come up with 3 The first and foremost, everyone pretty much knows, you're going to see online, anytime you shop, ARM rates are going to be lower than fixed

That's obviously one big advantage in terms of the payment With that lower payment, it leans us into — if you are very tight from a loan qualification standpoint with your debt-to-income ratios If the 30-year fixed rate, which puts you over the tipping point, you can look at the 15-year ARM that we offer or even the 10-year ARM Usually the 10-year one is pretty closed to the 30-year fixed That, or the 7/1 ARM

If you're really tight on ratios, and you really want the property and want to get into it, and it's your dream house, and the payment is just over the line, an ARM could be an option and the key to success to get you into that house Lastly but not least, ARM programs can be pertinent more to our market Arlington, DC, where you're not necessairly looking at long-term houses

When you're thinking about something that is going to be a 5-7 year — you're just not totally sure, but you're also very sure that it's not going to be a house you're living in for 30 years It could be a great tool to take advantage of the lower rate and then if you have a 7/1 ARM and you're only going to be here for 5 years, you beat the adjustment period So take advantage of that lower rate, and then you're out of the house before the adjustment period So when you say 7/1 ARM, 10, 15, just for the viewers, for their understanding, what do these terms mean? 7/1 ARM The '7' stands for how long that rate will be fixed for the inital period

If you have a 7/1 ARM, your rate when you go to settlement is going to be fixed for the first 7 years If it's 10, 10 years 15, 15 years The second digit is the adjustment period How often does it adjust after that fixed period ceases

7/1, starting year 8, your rate will adjust And then every year there after it will adjust to whatever the current market conditions are We do have other products like a 5/5 ARM or 15/15 ARM The second digit being '5', means it will only adjust every 5 years instead of every year like a 7/1 or 10/1 15/15 is a terrific product from our standpoint

Low rate but it will only have 1 adjustment period because the loan is amortized over 30 years The first 15 years it's fixed And it doesn't adjust after that It just has 1 adjustment period at year 15 and then it stays that way in year 16 and beyond Now who would be a good candidate for an Adjustable Rate Mortgage? Is this someone that is moving out of town? Maybe they're not sure how long they're going to stay in the area? Is it — and not to burden you with like 7 different questions — is it someone who is timing the market where they're going to buy at a low-interest rate and then watch the rates jump and see when the best time to sell would be? What're your thoughts? It's kind of got a wide variety

Initially, you would think first-time home buyers, Millennials because most are probably not buying their dream house at that point You actually see more first-time home buyers directed toward a 30-year fixed or some other fixed programs, but if it's buying-up and in a couple years into your profession and you have a promotion or a new job and moving up but maybe not necessairly dream-home It could also be for more wealthier people DC

, Arlington, if you're buying a big house but also have significant income and assests, that would, you could pay it down sooner You don't need the full 30 years to pay off a loan That would be another group of clients that would benefit from that Let's wrap this up and then I'm going to have 1 final question So the 3 things just to recap – I know the first you said was the lower rate, the second was the DTI, is that correct? Debt-to-Income, you have more flexible terms? If you're really close

if you wouldn't qualify with a 30-year fixed payment on the particular house, and you really want the house, in order to lower your payment to qualify, if you can lower the rate, you will lower your principal on the interest payment to lower the overall payment Like I said, if you're really tight, that could be the difference maker And then the third thing, the third thing is mobility

If it's not your dream house and you don't want to have a 30-year fixed payment and you know for sure you're not going to be staying in the house long-term, take advantage of a lower rate and lower payment while you're in the house My final question is, in your experience, how have you seen purchasers mess up an ARM? An adjustable rate mortgage How have you seen, when you're looked at their paperwork and they bought 10 years ago, 15 years ago they bought, 2 years ago they bought and you're like, wow this is going to be tough to get out of this one Or, 'man these payments are a lot higher than they should be' What has that person done to get themselves in that position? Whether it's them, the market, whether it's timing What have they done? I will say this: I've rarely seen that

Just because of the way rates have been at all-time historic lows in the past 4-5 years You're typically seeing most people if they're in that ARM period are riding it out But, not to say that it's never happened, when someone has come to an adjustment period and their ARM is going to significantly go up, usually we'll write an analysis on a 30-year fixed and re-financing out to the 30-year fixed if it makes sense If there's no savings invovled, there's no loan, and you're kind of stuck with that It's tough to forsee what you will be doing in the years coming

I don't even know what I'm going to be doing this weekend It's difficult but it's a very rare circumstance where if you do come across that it's maybe that have purchased with an ARM in the past couple years, with now the economy in a recovery, with rates starting to rise, the FED raised the rates a quarter of a percent last week So we could see that for clients that are in the middle that maybe something that was not so rare I've heard rates have been going up for a while Is that actually going to happen? I wish I had that answer

That's an unfair question You wouldn't be here You'd be playing the lottery It's probably going to be on a slower progression Lenders are always warning people that they could change daily, they could change at the drop of a hat

Yeah I think when people are applying for a loan they automatically go the fixed route and maybe there's already that analysis beforehand and the lender has fronted that, but especially when rates are this low that you should definitely consider the ARM At elase consider it And not automatically pigeon-hole yourself into doing a 30-year fixed Cool Thank you very much for watching

Until next time, create a productive day Take care

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