The Basics of Variable Interest Rate Home Mortgages: Pros and Cons

When shopping for the best home mortgage program to finance or refinance your home, you may be coming across variable interest rate mortgage loans. This type of loan program may be unfamiliar to you so the Denver home mortgage specialists at Naranche want to help you by providing more information about what they are and how they may or may not be the best choice for you.

What is a variable interest rate home mortgage?

Variable interest rate home mortgages, also sometimes referred to as adjustable home loan mortgage rates (ARM) or floating rate mortgages, are a form of mortgage that allows for fluctuations in the interest rates being charged for home mortgages during any one month period in the United States. So what that means for home buyers is that the monthly payment made can change month-to-month for the life of the loan. Generally speaking, the interest rates for a home mortgage loan will increase over time, dependent upon the state of the housing market for any given region.

The pros and cons of variable rates

There are many positives as well as negatives surrounding variable interest rates home mortgages. For home buyers who are looking for payments that will stay the same for the terms of the loan, say 10-30 years, a variable interest rate mortgage may not be the best choice. For those who wish to get into a home of a higher range or get a Denver home refinanced to enjoy low payments when the market is performing well, it is a great option. Here are some of the most common pros and cons associated with variable interest rate loans.

Pros

• It’s easier to qualify for a variable rate interest mortgage loan because financial institutions know you will be paying the current market rate for interest vs. getting a fixed rate mortgage.
• Monthly payments can be much smaller than other more conservative home loans. Your neighbor with the fixed rate mortgage may be paying a higher monthly payment for an equal-value home.
• Variable rate interest mortgages can be more flexible in terms of how much of a down payment is required and the length of the terms, allowing home owners to pay off their homes much faster for short term stays.

Cons

• Variable rate interest loans can produce “payment shock” when interest rates suddenly increase. This has been partially responsible for the housing market collapse.
• Variable rate mortgages may be somewhat confusing in that there are multiple types of programs and terms available, making it difficult for consumers to choose.
• Variable loans can and will generally increase over long term loans. That means you can pay significantly more for a home if you plan to live in it for more than ten years.

How you can take advantage of the home mortgage experts at Naranche.

The variable home mortgage bankers at Naranche have been helping home owners in Colorado and the surrounding region since 1981. They know what the housing market is about and how to avoid pitfalls when selecting loans. They also provide responsive support and help with other forms of lending, such as government grants, FHA and HUD programs as well as having the ability to work with internal sources of financing. If you are having trouble deciding if a variable rate mortgage is right for you, contact the licensed home mortgage experts at Naranche.