808 Oahu Realtor (Ryan Riggins) License #RS-74740

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Is Understanding Costing You Money?

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People tend to fear what they don’t understand. Homeowners understand fixed rate mortgages and remember the horror stories of people who lost their homes because they could no longer afford them when their adjustable rate mortgages went up.iStock_000023022788Small-250.jpg

Interest rates on fixed-rate mortgages have been so low for enough years, that borrowers haven’t even given much consideration to an adjustable rate mortgage. Changes in the way adjustable rate mortgages are now made make them much safer for borrowers who understand how they work but also know they’ll only be in the home for a limited period of time.

Adjustable rate mortgages can go up or down according to an index that the lender has no control. The amount that can be adjusted is limited by caps for each period and for the life of the loan. While there are different periods for ARMs, the most popular lock the first period for five to seven years and then, can adjust annually after that.

One quick and easy way to determine whether an adjustable may be a viable alternative to a fixed would be to determine the maximum payment adjustments possible to find out when the savings from the early years are exhausted which would be the breakeven point. If the borrower is certain they’ll move prior to that date, the ARM will definitely provide a lower cost of housing.

The breakeven point for a $250,000 mortgage would be 8 years 3 months comparing a 2.9% 5/1 adjustable-rate with 1 and 5 caps to a 3.8% fixed-rate mortgage. In the initial five-year period, the payments on the ARM would be $124.32 lower and the unpaid balance would be $3,522 less than the fixed-rate to make a total savings of $10,981.

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Whether you’re buying or refinancing, get some good advice from a trusted lending professional about the adjustable-rate alternative. If you’re only going to be in the home a short time after the mortgage is made and your tolerance for risk allows you to feel comfortable, the ARM may be the best choice for you. Check out this ARM Comparison to use your own numbers.

Author: Ryan Riggins (RA)

Born and Raised on Oahu my approach to the real estate business is different than most agents working in the industry today. The average agent sells fewer than 7 homes a year while attempting to manage every aspect of the business all by themselves. This approach allows them very little time working directly with buyers and sellers because they are so overwhelmed with all the busy work that is required behind the scenes. My system allows me to spend 90% of my time working directly with clients who want to buy and sell real estate today and in the very near future. Here at John Riggins Real Estate we have been helping families move since 1977. We specialize in the Aiea to Kapolei area but not limited to Ewa Beach area. To see all the great ways we help buyers and to view what differentiates us from the typical realtor in the area, visit http://tinyurl.com/clientsuccessstorys Because of Ryan's Military Relocation Expertise, Ryan's success revolves around that same simple principle his Mother and Father instilled in him; serving those who serve our country. His track record shows that he puts his clients first and in a high paced market, he is making VA loans work for our soldiers, sailors, airmen and marines. With previous clients ranging from E-5's to 04's, Ryan is ready and willing to make sure all those who have served our country, have every opportunity to own their piece of it. For the majority of people the purchase or sale of a home is their largest single investment. My goal is to guide you successfully and easily through the contractual, investment, and emotional decisions involved in the Real Estate process. I am committed to providing you, your family and your friends with superior service and expertise and to make it the most memorable purchase of your life.

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