Choosing A Short Term Home Loan

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You’ve found a home, your credit is in good shape and you have money for a down payment. So, how do you go about picking the right home loan for you?
There are more than a few issues that go into picking a home loan. One of them is the length of time you intend to stay in the property. If you have plans to sell the property in a few years, then choosing a short term home loan is going to be quite easy.
Adjustable rate mortgages are very good solutions for short term home ownership situations.
It is a fact you will get a much lower interest rate on an adjustable rate mortgage. It automatically translates into lower monthly payments, which gives you the financial flexibility for the first couple of years.

 

Interest rates on ARMS are lower than fixed rate loans for one primary reason. With an ARM, lenders assume you intend to hold on to the home for a relatively short period of time. As a result, they are willing to offer lower interest rates because they don’t have to worry about getting stuck with a bad rate for 15 or 30 years.

With a fixed rate mortgage, the lender runs the risk of lending you money at a relatively low rate for a long period of time, only to see rates rise later during the life of the mortgage. This leaves the lender in a negative situation. Lenders make every effort to avoid such scenarios.

The disadvantage associated with ARM loans is the inherent risk. With an ARM, the interest rate can be adjusted on a quarterly or yearly basis depending upon the terms of the loan. In the event that the real estate market settles down and interest rates rise, you might not able to make payments and left with a home of nominal equity.

For short term home ownership situations, adjustable rate mortgages almost always make sense. While an ARM may seem an obvious answer, just be careful you are not stuck holding the bag if rates shoot up.

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