For some borrowers, adjustable rate mortgages are the key

The New York Times’ Maryann Haggerty writes about The Appeal of Adjustable Rates

“THE 30-year fixed-rate loan has earned its reputation as the sensible, conservative move in the aftermath of the financial crisis, especially with near-low interest rates. But despite risks, some borrowers still are getting or keeping adjustable-rate loans, which have even lower rates.”

“Adjustable rate mortgages generally attract borrowers when rates are high. The rate is set for a specific time — generally one, five or seven years — and then it adjusts to prevailing rates within boundaries. That means payments can go up. Payment shock has caused plenty of problems over the years. [From the Ed – shows us the cases.] Rates can also go down, as borrowers who took out ARMs five to seven years ago are finding now. But it’s tough to imagine how rates could get much lower than now, short of Japan-style negative rates.”

 According to Sari Rosenberg of Manhattan Mortgage Company whom we’ve worked with, “If a person is debt-averse and has a history of paying off his or her mortgage within 5 to 10 years, then he or she would definitely consider an ARM.”

Who else would benefit?  According to Ms. Rosenberg, “I have another client who knows he is selling his home within the next few years and even with the closing costs he will be saving money,” so he took out a three-year ARM.

“Keith Gumbinger, a vice president of HSH Associates, a financial publisher in Pompton Plains, N.J., said, “ARMs are good for borrowers with short-term time frames, usually seven years or less.”

“Conversely, ARMs aren’t wise for borrowers who plan to stay put, Mr. Gumbinger said, or those who would have trouble managing rising payments. That includes people who expect cash-flow strains, such as those starting a family.”

Is an ARM right for you?  A savvy mortgage counselor can help.  Read the full story.

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