Benefits of Adjustable Rate Mortgage Vs Conventional

When it comes to choosing the right mortgage for your home, it’s crucial to consider the options available and align them with your financial goals and circumstances. Two common types of mortgages are the (ARM) Adjustable Rate Mortgage and the conventional mortgage, each with its own set of benefits.  In this blog post, we will explore the advantages of Adjustable Rate Mortgage Vs Conventional and help you make an informed decision.

Understanding Adjustable-Rate Mortgages

An adjustable-rate mortgage (ARM) is a type of home loan characterized by its fluctuating interest rate. With an ARM, the initial interest rate remains fixed for a specific period of time. Subsequently, the interest rate, applicable to the remaining balance, can change and undergo periodic adjustments, either on an annual or even monthly basis.

These mortgages are also referred to as variable-rate mortgages or floating mortgages. 

Understanding Conventional mortgages

A conventional mortgage is a type of homebuyer’s loan provided by a private lender. In contrast to (FHA) Federal Housing Administration loans, conventional loans often come with a relatively higher interest rate. They may also require a higher credit score for qualification.

It’s important to note that conventional loans are not affiliated with or backed by any government entity. Instead, these mortgages are offered by private lenders, which can include banks, credit unions, and mortgage companies.

Nevertheless, it’s worth mentioning that certain conventional mortgages can receive guarantees from two government-sponsored enterprises (GSEs): the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac).

The Versatility of Adjustable Rate Mortgages (ARMs)

Here are some of the benefits of adjustable-rate mortgages:

  1. Lower Initial Interest Rates:
  • One of the most enticing features of ARMs are their lower initial interest rates. This means lower monthly payments, making homeownership more accessible, especially for first-time buyers.
  1. Short-Term Savings:
  • If you plan to live in your home for only a few years, an ARM can provide significant short-term savings. You’ll take advantage of the low initial rate and sell the property before it adjusts.
  1. Potential Rate Caps:
  • Many ARMs come with rate caps, limiting how much the interest rate can increase. This provides a safety net in case market rates increase.
  1. Favorable Economic Conditions:
  • ARMs can be an excellent choice during periods of low interest rates. If you expect rates to remain stable or even decrease in the future, an ARM can be a smart financial move.
  1. Investment Property:
  • For real estate investors, ARMs can be attractive. Lower initial rates can boost cash flow on rental properties and improve overall investment returns.

The Stability of Conventional Mortgages

  1. Predictable Payments:
  • Conventional mortgages come with fixed interest rates, providing predictability and stability in your monthly payments. This is ideal for those who want to budget with certainty.
  1. Long-Term Planning:
  • If you plan to stay in your home for an extended period, a conventional mortgage offers peace of mind. You won’t have to worry about interest rate fluctuations affecting your budget.
  1. Credit Score Flexibility:
  • Conventional loans may be more forgiving when it comes to credit scores. If you don’t have an excellent credit rating, you may still qualify for a conventional mortgage with competitive rates.
  1. Protection from Market Changes:
  • With a fixed-rate mortgage, you’re shielded from market changes and potential interest rate spikes. This can be a valuable feature, especially during economic uncertainties.
  1. Refinancing Opportunities:
  • If market interest rates decrease significantly after obtaining your conventional mortgage, you can explore refinancing to take advantage of lower rates without affecting your existing loan.

Which Type Of Mortgage Is Right For You?

The decision between an ARM and a conventional mortgage depends on your financial goals, risk tolerance, and how long you plan to keep the loan. ARMs may be attractive for short-term borrowers who anticipate favorable income changes, but they come with risks. 

Conventional mortgages, available from private lenders or government-sponsored enterprises like Fannie Mae and Freddie Mac, are more stable but may have slightly higher interest rates, especially without an excellent credit rating. It’s essential to carefully consider your financial situation and goals before making a decision.

What are Heritage Financial Credit Union’s ARM Offerings?

If you’re considering an adjustable-rate mortgage (ARM), be sure to check out Heritage Financial Credit Union‘s ARM offers. HFCU offers a variety of ARMs with different fixed-rate periods and interest rate caps. This means that you can find an ARM that fits your individual needs and financial goals.

Here are some of the benefits of getting an ARM from Heritage FinancialCredit Union:

  • Competitive Interest Rates. Heritage Financial Credit Union offers competitive interest rates on ARMs. This can save you money on your monthly payments and help you build equity faster.
  • Flexible Terms. Heritage Financial Credit Union offers a variety of ARMs with different fixed-rate periods and interest rate caps. This means that you can find an ARM that fits your individual needs and financial goals.
  • Experienced Lenders. HFCU has a team of experienced lenders who can help you choose the right ARM for your situation. They can also answer any questions you have about the process.

If you’re ready to explore the possibilities of an ARM, be sure to contact Heritage Financial Credit Union today. Your dream home might be closer than you think!