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With interest rates still
the lowest they've been in almost 40 years, you'd think
home buyers would opt for a FIXED RATE mortgage when
financing a home purchase. Interestingly, one
in five new mortgages is an ARM, or ADJUSTABLE RATE
MORTGAGES.
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Why is this? Federal
Reserve Chairman Alan Greenspan noted that home buyers
who selected an ARM saved tens of thousands of dollars
when interest rates FELL and their respective mortgage
payments went down as well.
It is true that
ARMs' are riskier in a rising-rate environment, however
there are several cases where an ARM makes sense.
Because ARMs' typically start off with a lower interest rate than conventional
fixed rate home loans, buyers can qualify for a larger loan. This is especially
valuable to buyers who don't intend to stay in their home for a long time; an
ARM's initial lower interest rate may be fixed for a five year period, about
the length of time a “short-timer” might elect to reside in the home.
Remember,
a lower interest rate means a lower monthly payment, so buyers electing to go
with an ARM can save thousands of dollars in that five year period.
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Mortgage
experts and financial planners point out that many
people refinance their home loans every five to
seven years; if you go with a fixed rate mortgage
you are, in effect, paying a premium for protection
that isn't always necessary.
These
same experts note, however, that an ARM is not for everyone and several factors
should be considered before selecting which type of home loan to apply for. They
include:
• Do you expect your income to rise, fall,
or stay steady for the next five to seven years?
• Do you intend to stay in
the home for more than seven years?
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• Are you more comfortable
knowing what your monthly payment will always be?
Answering these questions will
help you determine which mortgage option is right
for you.
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For more
information, contact:
Alan
Bien, Realtor, SRES, MBA
Coldwell Banker Previews International
Direct 650-917-4242 : Mobile 650-492-0811 : Office 650-948-0456
Fax 650-948-3749 : E-mail Alan.Bien@camoves.com
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