Many home buyers have obtained Adjustable Rate Mortgages (ARMs) to be able to purchase the home they would otherwise would not have been able to purchase, since the rates on ARMs are typically lower than the conventional 30-year or 15-year fixed rate mortgages.
I have a 5-year ARM too on my principal residence as well as my investment properties. It is a great way to pay less for more house basically.
If you are planning to sell your house before your fixed initial lower rate is becomes variable and likely to go up, Adjustable rate mortgages are great.
The problem with some recent variations of the ARM mortgages. They call these "Pay Option ARM". Basically, a pay option arm is an Adjustable Rate Mortgage, which adjust monthly instead of staying fixed for the first 3 or 5 years.
I am sure you have been receiving a ton of those "get a 400K mortgage for under $1200 a month" type of letters in your mailbox daily. They are even in local newspaper ads and internet ads.
The problem with this mortgage is basically, you have a higher payment, just like you would have if you chose to get a regular ARM or a conventional mortgage, however you have the option to pay a reduced amount every month and add the remaining amount to the balance.
In other words, every month you are deeper into depth than you were a month ago. It basically eats out your equity in the house.
I would be very careful about these type of mortgages since it can hurt your family's financial future if you are not well educated about what it is and how it works.
I have been hearing about some banks offering a free refinancing option to some of their clients to prevent possible foreclosures.
If you need help to understand how your current mortgage works, give me a call at 480-577-9616. I will be more than happy to help you identify the areas that may hurt you in your mortgage.
