3 Year Adjustable Rate Mortgage
Like fingerprints, every person’s financial situation is slightly different. Therefore, when entering an important financial contract such as a mortgage, it is important to make sure the terms suit your needs. Getting a mortgage may be the most important financial decision you make in your entire life, and it is important that you do it right (for you). If you think a 3 Year Adjustable Rate Mortgage may be a good fit for you, keep reading to find out its advantages and disadvantage.
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General Overview for a 3 Year Adjustable Rate Mortgage
A 3 Year Adjustable Rate Mortgage is so called because the first three years of the mortgage are set at a fixed interest rate, but the subsequent portion of the term is set at an adjustable rate. Many people use this mortgage if they plan on refinancing or moving after the first three years.
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Common Questions: Advantages and Disadvantages of a 3 Year Adjustable Rate Mortgage
- The main advantage of the 3 Year Adjustable Rate Mortgage is the initial three year period in which your monthly payments are low and predictable. Lower monthly payments can be especially helpful when you first move into your home because they free up extra cash for little home improvements and other miscellaneous projects that will help make your new house a home.
• One of the main disadvantages of the 3 Year Adjustable Rate Mortgage is the period of adjustment after the initial three years. At this point, your interest rate will adjust according to the market, and may jump up significantly. Although Adjustable Rate Mortgages usually come with a 2% interest rate cap, your payments can still increase significantly after those first three years. It is important to be financially prepared to pay for this period, or be prepared to refinance.
• Another advantage of the 3 Year Adjustable Rate Mortgage is similar to the main disadvantage. After the initial three year period, your interest rate will adjust. If the market has improved since you got your mortgage, your monthly payments may not change at all, or they may even be a little lower.
• A 3 Year Adjustable Rate Mortgage can help you buy a home that you wouldn’t be able to afford for another three years. If you are certain that you will be able to afford your higher payments in three years, the 3 Year ARM allows you to nab your dream home now.
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