If you have a high house payment, that doesn’t mean your home is more valuable, it may indicate that your mortgage rate is higher than it has to be.
Although fixed rates are currently low, you might consider looking into an adjustable rate mortgage. Depending on how long you plan to own your home, an ARM may provide the lowest cost of ownership.
There are different types of ARMs. One type, an FHA ARM, features a maximum rate change of 1% during one period and the maximum lifetime cap of 5% over the initial rate.
The chart below shows an example of a 30 year mortgage with a five year fixed rate that can adjust every one year after that, based on independent indexes. The payment on the adjustable is $153.48 lower for the first five years/60 payments. The lower interest rate loans amortize faster than higher interest rate loans. The ARM in the example below has a lower unpaid balance of $4,239 at the end of the first five years.
At the end of the first period, the total savings on the ARM is $13,477. The breakeven point for this loan would be 8.5 years. If the borrow felt they would sell the home prior to this point, the housing cost for this ARM would be lower, even if the mortgage rate increased to the maximum level at each adjustment period.
Always consult with a trusted mortgage professional to learn more about the advantages and disadvantages of varying programs. You can also contact one of our agents to help guide you as well.
For more information, visit: www.freddiemac.com/pmms