South Carolina Adjustable-rate mortgage 

Adjustable-rate mortgage

Adjustable-rate mortgage in South Carolina have a specified length of time in which the interest rate is constant and does not change. After the initial term, the rate resets periodically based on the index and margin that was selected. The length of time at which the rate is fixed can vary significantly- anywhere from one year to 10 years according to the type of loan selected. The shorter the length of time the rate is fixed, typically the lower the initial interest rate.

Your interest rate partly determines your mortgage payments, and depending on what the market conditions are and the rate for fixed loans, adjustable-rate mortgages can be attractive.
However, after the fixed rate term expires, the interest rate on your loan constantly adjusts to the fluctuating marketplace and can increase your monthly payments or lower them as the market dictates.

With adjustable-rate mortgages, there are limits on how much an interest rate can increase over a year or the lifetime of your loan.  This will reduce the risk somewhat but it is wise to not plan on being in the house after the fixed rate period expires unless market conditions will result in a lower rate.

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ARM loan calculator

Like any other mortgage product, understanding the details of each type of mortgage is the key to ensuring that you’ve chosen the right solution. If you’re considering an adjustable-rate mortgage, you can compare different types of ARMS using an online mortgage calculator.

An ARM calculator shows an adjustable-rate mortgage that results in a new monthly payment. The monthly payment is automatically calculated to clear the entire mortgage balance within a selected term. After the initial period, the interest rate and monthly payment adjust at the chosen frequency. A good credit score will play a large part of the interest rate for all mortgages.

For example, you can choose a loan that features a fixed rate for five years and a floating rate for the remaining 25. In contrast, you can evaluate a fixed rate for two years with a variable rate that adjusts to the current economy every year. It provides an amortization schedule for the length of time remaining on your loan and displays various outcomes that may impact your payments down the road.

Adjustable-rate mortgage vs fixed

Fixed-rate mortgages and adjustable mortgages are the two primary types of mortgages when you choose to buy a home. While the marketplace offers numerous alternatives within these two categories, the first step is to determine which loan type is most suitable for your needs.

The main advantage of a fixed-rate loan is that the borrower is protected throughout the lifetime of their loan. Although the amount of interest and principal paid each month varies, the total payment remains the same and there is no risk of a sudden interest rate increase. Budgeting is effortless and allows for peace of mind.

Although the interest is fixed, the amount of interest paid monthly depends on your mortgage term. The most common mortgage is a 30-year term which has a significantly higher overall cost due to the interest paid over a longer period of time.  If a 20-year term is selected, the monthly payment will be higher but the interest charged over the term is significantly less than a 30-year term.  However, when interest rates are higher, qualifying for a loan with a shorter term may become more difficult as the payments are higher.

Adjustable-rate mortgage pros and cons

In comparison, the main reason to consider an adjustable-rate mortgage is you may end up with a lower payment than you anticipated. The bank usually rewards applicants with a lower initial rate as you are undertaking a risk that rates could rise in the future.   Typically, if the applicant is planning on selling the property prior to the fixed rate expiring, an adjustable-rate mortgage is a good option.

If you are considering an adjustable-rate mortgage, although you may benefit from a lower payment, you don’t know what your financial situation will look like when the rate adjusts. What was an affordable price can become a severe burden and can result in an unaffordable mortgage payment.   The maximum allowable adjustment caps will limit the interest rate increase risks, but they won’t eliminate them.

Types of Adjustable-rate mortgage

Adjustable-rate mortgages come in various forms, each with its own features. The choice you make ultimately makes a tremendous difference in the quality and cost of the mortgage you end up with. When it comes to finding the proper mortgage for your family, educate yourself with the right tools to select the option that best suits your financing needs.

Contact the Cain Mortgage Team today to get started with the right mortgage at the best rate!

Photo: frank mckenna

Source: Benefits.VA.gov