Over the past year, there has been a lot of information about Adjustable Rate Mortgages (ARMs). Many publications and news outlets have said that ARM mortgages are the reason for the mortgage crisis that started in 2008. Several also state that ARM mortgages are the reason for the high foreclosure rate.

Though some of the information is true, ARM loans have received a bad rap during this process. Yes, ARM loans are not for every consumer and you should only consider an ARM loan as long as you know the terms of the loan.

Below are some reasons why one would even consider an ARM loan.

First off, you must ask yourself how long you plan on owning the mortgage or keeping the property. The average person stays in their home about 5-7 years before they sell or refinance their property. The average home owner only keeps their mortgage loan for about 5 years as well.

Since several home owners only keep their home loan for a short period of time, that was the basic design on an ARM loan. The ARM loan gives you a reduced rate than a FIXED rate mortgage for a period of time. Once the lock period ends, then the rate can adjust.

Keep in mind that how long you plan on keeping your mortgage or property can play an important part in your decision to go with an ARM or a Fixed rate mortgage. For example, if you plan on keeping your home for 5 years and the current FIXED rate is 5% while an ARM rate is 4.5%, then by going with a 5 year ARM could save you thousands over the first 5 years.

A FIXED rate loan is a great option for homeowners that plan to stay in their property for a longer period of time. If you are uncertain of how long you plan on keeping your property, then a FIXED rate mortgage would give you the peace of mind of knowing your rate and monthly mortgage payment would not change.

ARM loans are a great option if you understand the mortgage term itself and are used for the right reasons. A few people that have ARM mortgages now have actually seen their interest rate decrease. The terms of how the rate changes will be in the mortgage note. Each ARM loan is not the same, so it is crucial to understand how the rate is calculated once the loan goes into the adjustment period.

Here is a reasons to never do an ARM loan. If the only way you can qualify for the home loan is to go with an ARM loan, this is not a good reason to do an ARM loan because once the loan adjust, you might not be able to make the new monthly loan payment.

For the most part, what got people into trouble with the ARM loans is that they did not understand how their monthly payment would be affected once the mortgage went into the adjustment period.

David White is a Sr. Mortgage Consultant who specializes in home loans. He has over 12 years experience helping his clients with Southlake home loans

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