Homebuyers planning to sell their homes in a few years might benefit from a 15-year mortgage. Adjustable-rate mortgages start with lower initial interest rates, then adjust periodically according to the terms of the loan and in response to movements of rates in the financials markets. As a result, monthly principal and interest payments change over time. But in exchange, the homebuyer must bear a greater amount of interest-rate risk. Most ARMs have caps to regulate the amount the interest rate can increase or decrease during individual adjustment periods and across the life of the loan.
ARMs are available in several different terms.
Buyers who might benefit from ARMs are those who are confident their incomes will increase steadily over the coming years or those who plan to sell their homes in a few years and therefore aren t concerned about potential long-term rate increases. Balloon mortgages can function like either fixed or adjustable rate mortgages for the first several years. But once the designated time period ends, the borrower owes the remaining balance on the loan in a lump sum. In some cases the option to refinance the remaining balance is available. Housing industry experts recommend balloon mortgages to buyers who plan to sell their homes within a few years and can pay off the balloon payment with proceeds from the sale of the house or by refinancing to a longer-term loan.