The recession is coming to an end and many blame it on the ARM loans that were issued to those poor victims that simply didn’t read the terms on their loan documents, we have discussed over and over who is to blame for this recession and the fact that ARM loans are simply not at fault. It seems that the general public however is starting to agree with me as ARM loan sales are up and the rates are better than ever.
Adjustable Rate Mortgages also known as ARM loans are back by popular demand, but lets not make the same mistake twice, lets learn to read the fine print and understand the difference between ARM loans and Negative AM loans. Getting an ARM is one of the best current options, the market has hit rock bottom and is showing signs of improvement which means values are bound to continue growing and offer great equity opportunities.
The downfall of an ARM loan is that you don’t pay that much towards your principal, meaning in essence you really owe about the same amount that you bought the house for 6 years later when you get a bigger place. That means that unless you are retired, then you don’t have to worry about it. You will get a 30 year fixed loan and get large payments on a home that you don’t even want to live in more than 5 years when instead you can let the equity grow, keep more cash in your pockets and start saving for your new home. As long as you buy your home at a good time (like now) there is nothing to worry about. ARMs are only dangerous in non growth markets, as in markets that will not increase in value much.
ARM loans are not evil, you simply need to know that the 5/1 ARM is a very popular option that enables you to get a fixed low rate and payment for 5 years and then adjusts every year there after, at which point you will have sold the home and moved on. Make sure to read the fine print and not get a Negative AM mortgage instead which appears to give you the same lower payment but then tricks you by adding the rest of the interest to your principal. The main difference between the ARM and the Negative AM is within your payment options. If you have an ARM then your payment is one fixed payment for the duration of the fixed period and does not give you the option to pay more or less on your statement. The Negative AM on the other side gives you 4 options on what to pay. You choose the interest only, introductory rate, 30 yr payment or 15 year payment. This creates mass confusion for people that are not savvy in business and in the loan market.
So remember to read your paperwork and understand what you are signing for before acquiring your next house. Simply know that ARMs are not evil, you just need to know what you getting into.