3 Considerations for an Adjustable Rate Mortgage

When choosing to finance a home at the Lake of the Ozarks, you have options. One decision you'll need to make is whether you want a fixed rate mortgage or an adjustable rate mortgage. With a fixed rate mortgage, your interest rate stays the same throughout the life of the loan. However, with an adjustable rate mortgage, you may be able to secure an even lower rate in the beginning; after that introductory period, the interest rate then moves with the market. Keep reading to learn more about adjustable rate mortgages and what you should consider about them from your Lake of the Ozarks mortgage lender.

1. Consider the Current Spread. 

The "spread" is the difference between the adjustable rate and the fixed rate. This difference is your incentive for choosing an adjustable rate mortgage over a fixed one. The bigger the spread, the more attractive an adjustable rate mortgage will look. The "teaser period" is the duration that the loan will stay at that introductory rate before it shifts to the market rate, which could be higher or lower than what you were previously paying. That's the risk you take when choosing an adjustable rate mortgage. In general, the shorter your teaser period, the better introductory rate you can get. The savings available with an adjustable rate mortgage can be substantial during the teaser period. However, after the mortgage enters the adjustment period, the savings can be reduced or even eliminated.

2. Consider Your Time Frame. 

Another important consideration when choosing between an adjustable rate mortgage or a fixed mortgage is how long you plan to stay in the home. If you feel you'll stay in your home for the rest of your life (past the teaser period), then you might be better off sticking with a fixed rate mortgage. However, if you think you'll only stay in this house for a few years before selling or refinancing, then an adjustable rate mortgage may be the better option. According the the National Association of REALTORS, homeowners typically own property for close to 7 years before selling. Older homeowners typically keep a home longer, while first-time home buyers will often keep a home for a shorter period of time. There's no sense in paying the interest rate for a 30-year mortgage if you're only planning to stay in the home for 5 years or less. See what kind of savings you could get with an adjustable rate mortgage if this is the case.

3. Consider the Loan Size. 

Are you purchasing a home that requires a "Jumbo Loan"? A jumbo loan is a mortgage loan which exceeds the loan size limits for an area. When borrowing more than your area's loan limit allows, the fixed rate pricing tends to deteriorate and your best choice could be an adjustable rate mortgage. The savings you can get with an adjustable rate mortgage on a jumbo loan can be huge. It's not uncommon to see the adjustable rate on a jumbo mortgage beat the fixed rate by 250 basis points or more. That's a pretty big incentive to choose an adjustable
rate over a fixed rate mortgage.

With mortgage rates remaining low, the savings of an adjustable rate loan are even better. If you're considering a home loan at the Lake of the Ozarks, give us a call at 573-746-7211 to discuss your options. As your mortgage lender at the Lake of the Ozarks, I'm here to work with you every step of the way. When it comes to your financing needs, I'll discuss your options, offer competitive interest rates and back it up with the first class service you deserve.

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Michael Lasson

Senior Loan Officer

NMLS #: 493712

4655 B Osage Beach Parkway

Osage Beach, MO 65065

Direct:  (573) 746-7211

Cell: (573) 216-7258

Fax:(866) 397-0318

Email:  mlasson@fsbfinancial.com

**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.