Top 3 Benefits of Adjustable Rate Loans

An adjustable rate mortgage (or ARM) is a home loan with a variable rate. If interest increases or decreases than the rate fluctuates with it. These can be useful loans for getting into a home, but they can also be risky. To help you decide if adjustable rate loans are right for you, here are the top 3 benefits of adjustable rate loans.

Lower monthly payment: Since a adjustable rate mortgage fluctuates with interest rates, there is a chance you could end up with a much lower monthly payment. Also, the bank will often reward you with a lower initial rate because you're taking the risk that interests rates may rise, as opposed to a fixed rate mortgage that will have a more expensive initial rate.

Prepayment: In the U.S., an adjustable rate mortgage offers the ability the prepay principal (capital) early without a penalty. Also, if you do pay early, part of the principal will reduce the total interest paid. This allows you to shorten the amount of time needed to pay off the loan!

Time: adjustable rate mortgage allow for both long and short term loans. This gives you a flexibility to decide how long you need the loan and act accordingly. For those on the move often, say three, five, or seven years, an adjustable rate mortgage may be very beneficial as they often include a lower, fixed rate of interest for shorter periods of time.

Adjustable rate loans can be risky. Always be sure to do your research and prepare should interest rates rise in the future. However, if you feel that adjustable rate loans are what your looking for, the risk does come with reward, and the lowered monthly payments could be what your looking for,