In late 2022, the Fed began to increase mortgage interest rates. These increases have led Anchorage lenders to offer some alternatives to the traditional 30-year fixed-rate mortgage. An adjustable-rate mortgage (ARM) is one in which the interest rate on the loan changes periodically based on market interest rates. Examples of conservative and safe Adjustable-Rate Mortgages (ARMs) include:
5/1 ARM: This type of ARM has a fixed interest rate for the first 5 years and then adjusts annually. The interest rate is typically capped, limiting how much it can increase.
7/1 ARM: Like the 5/1 ARM, this type has a fixed interest rate for the first 7 years before adjusting annually.
10/1 ARM: This type has a fixed interest rate for the first 10 years before adjusting annually.
These types of ARMs tend to be considered safer as they have a longer initial fixed-rate period. A longer fixed rate period provides more stability and predictability in monthly payments. Additionally, they often have interest rate caps, which limit the amount the interest rate can adjust, providing additional protection to borrowers. It’s important to note that while ARMs with longer fixed-rate periods and interest rate caps may be considered safer, they still come with the risk of future rate adjustments, and the amount of the monthly payment can still change. The main reasons to consider an ARM include:
Lower initial interest rate and monthly payments than a fixed-rate mortgage
Opportunity for lower rates if market rates decrease
Better for borrowers who don’t plan to keep the loan long-term
May qualify for a larger loan amount due to lower initial payments
On average, people move homes every 5 years. That means the loan they obtained originally is paid off and they get a new loan on the next home they buy. If you had a 5-year or longer adjustable-rate loan, and moved within 5 years, it would not have changed from when you first took the loan. Since there are safe alternatives to the traditional 30 year loan, you may want to reconsider your primary residence or second home based on alternative financing that may differ from your last loan. If you have any questions, don’t hesitate to reach out to the team here at Wolf Real Estate, your professional friends in Alaska Real Estate business! Click the contact us button at the top of this page to connect with an agent today!