The Pros and Cons of an Adjustable-Rate Mortgage

Unlike a fixed-rate mortgage, an adjustable-rate mortgage or "ARM" has an interest rate than varies over the course of loan repayment. Although the monthly payment may initially be lower with this type of mortgage, if interest rates go up, it may end up costing more over the duration of the loan term. This type of mortgage can be the right choice for certain types of buyers, though.

If you're considering selling or refinancing your home a few years after buying, you can enjoy lower payments without much risk of an interest rate adjustment. What if you don't move, or refinancing isn't an option? Depending upon the index used by your lender and the corresponding margin that is assigned to your loan, you may very well experience minor rate changes for an extended period of time. This has been my experience since 1998.

I can confidently tell you that I have paid market rates for 14 years while experiencing minimal rate changes, upward or downward. Had I opted for a fixed rate mortgage in 1998, I would have paid thousands of dollars more in interest over the past 14 years. I was willing to take a gamble, and it has paid off. With a reputable lender and accurate information from a mortgage specialist, an adjustable- rate mortgage has advantages. It allowed me the comfort and security of knowing that my home financing would remain with the lender that I trusted to do business with originally.

When shopping around for rates and adjustable options are available, ask about the index that the lender uses. It's important to know whether their index is reflective of mortgage activity. You want to have your rate adjustments associated with relevant products in a similar economy. You also want to know how your margin is established, as that directly affects your rate adjustments.

When borrowers are armed with good information, it's much easier to make the decision that is right for your individual needs. To see if an adjusted-rate mortgage is right for you, visit a representative at your local North Country Savings Bank.

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