Is More Always Better?

Following close on the heels of the interest-only mortgage, the Thirty-year adjustable rate mortgage (ARM) is the new kid in the in-crowd of specialized loans. Just as it sounds, this is a loan which has an end date Thirty years from its inception, which, for most people, means a lifetime of loan payments but at a considerably lower monthly payment.

HSH Associates, Financial Publishers, refers to this type of loan as a “Hybrid ARM”, of which there are many varieties. Without getting into the finer points of interest adjustment ratios, the bottom line question is “What makes a Thirty-year mortgage attractive to home buyers?” The simple answer to that is that the payments are lower. With the loan stretched out over Thirty years, payments can be as little as half of those for a 30year mortgage, and even lower comparative to a 15, 10, 5 or 1-year ARM.

A home valued at $500,000, for instance, with a 5/1 adjustable rate mortgage of $400,000 at the current rate of 5% (many hybrid mortgages offer unusually low rates, and this is just one example—check with your lender for current rates in your area), your monthly payment would be $1816.56, of which $1666.67 will be interest at the beginning of the payment series.

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