ARM - Adjustable-Rate Mortgage (Loan)

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It may be the Smarter Choice

Adjustable-rate loans unlike fixed-rate loans have a rate that can adjust over time. This means that the payment amount can change, and almost always will change over time. This change may be upward or downward, over the life of the loan. These changes are based on the index that the loan is based on, plus fixed margin.
Lender’s Advantage

The advantage of an adjustable-rate loan for a lender is that they reduce their risk. In case of fixed rate loan, if the rates go up, the lender would have lent money at a rate lower than the market value, and as such does not maximize the loan’s profitability. But in case of an adjustable rate, they would raise the rates when the rates go up, and lower it when the rates are down, but their margin of profit would be maintained.

As such, lenders prefer adjustable-rate loans, and to entice the borrowers, they offer lower starting rates, and pre-defined periods when the rates can adjust.

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Borrower’s advantage

Depending on the borrower’s plans for the property, an adjustable-rate loan may be advantageous. For instance, if the borrower does not expect to keep the property for a very long time, or if the borrower(s) expect that their income will increase over time, they may opt for the lower initial cost that and adjustable-rate would offer, and making it a win-win for the borrower and the lender.

Feel free to contact us to discuss various products and strategize on how to maximize your benefit with a loan that is right for you, whether fixed-rate or adjustable.