ARMs have new flavors With rates and prices climbing, people should consider alternative financing options such as adjustable-rate mortgages, too. Ultimately people look for that lower payment and Arms can really provide a lot of that. But consumers should keep in mind that the payment fluctuates with interest rates, usually on an annual basis. They have to be prepared to meet their obligations even if the payment rises substantially 12 months down the road. Yet the payment advantage of such loans shrinks because they have higher initial rates than their one-year counterparts.
Balloon loans are another option available to get a lower payment in the first few years.
These mortgages charge less interest up front for a set time frame, but require the borrower to either refinance at the end of that period, pay off the loan or convert it to a fixed payment schedule. New home buyers may be able to use builder incentives to their advantage, too. Cohen of Irwin Mortgage notes that companies in his market usually offer a few thousand dollars to consumers to put toward their mortgages. Someone can use that money to buy down the loan rate for a couple years. That would help people who don't have much money now but expect to earn more later.