An adjustable rate mortgage loan have many pro’s and con’s as do all mortgage lending options. There really are no bad or good mortgage loan type in a 1st mortgage or 2nd or if you are refinancing your mortgage loan. There are only different types of mortgage loans and each type has its own good and bad qualities. Adjustable rate mortgages (ARM) are helpful for people who are looking to be in a home for only a short period of time.
If you have a fixed rate mortgage loan and are looking to lower your monthly payment then an adjustable rate mortgage loan might be a good option for you. The interest rate on an adjustable rate mortgage are usually lower than a normal fixed interest rate mortgage. But, you run the chance of the rate increasing which can happen based on the current market and trend of the mortgage industry. Even lowering the interest rate on a mortgage a fraction of a percent can result in thousands of dollars in savings each year. Some ARMs can have a fixed term attached to the mortgage loan, some do not. Not having a fixed term means the bank has the ability to raise the interest rate at any given time. With a fixed term the bank must wait until that initial term is complete before they can raise the interest rate on the mortgage loan. The fixed term gives the borrower time to refinance or sell the loan before the interest rate is increased. If the borrower is able to refinance the loan before the fixed term is complete, or sell their property, they will most likely have saved a significant amount of money choosing an adjustable rate mortgage loan.
The risks of course run into the idea of that fraction of a percent changing on the interest rate. If the market falls and the borrower’s property is valued less than is owed on the loan the borrower will likely not be able to sell the property before the fixed term has expired and the rates will increase. A 2% or 3% increase on one’s mortgage loan payment could result in thousands of dollars more in mortgage bills each year.