Adjustable rate home loans are often given a bad name because a lot of people have ended up in trouble with them. The fact of the matter is that there is a demographic out there that these loans are perfect for, you just need to know if you are part of that demographic or not. If you read about these loans a bit you will find that there is a lot of negative information out there to be found on this topic, but there are some benefits to this type of loan as well.

The Benefits:

One of the benefits of adjustable rate home loans is that if you have credit challenges this is a way to get your foot into the door to buying a home. Many times if you have had credit problems in the past it is impossible to get approved for a fixed rate but you can get an adjustable rate loan. This may not be your first choice, but the benefit is that it allows for you to establish some positive credit history, especially where home ownership is concerned. When you have paid on the mortgage for three or four years and your mortgage is in good standing you can then choose to refinance and take on a fixed rate loan. Many times just having this three or four years of good payment history on an ARM loan will allow you to move onto the fixed rate loans so you don't have to deal with any of the drama of increasing rates.

There are those people who should look at adjustable rate home loans even if they can get approved for a fixed rate loan. Who should apply for these loans on purpose? That is simple; the people who should apply for these loans are those that plan to stay in the home for less than five years. Generally your interest rate will stay about the same for the first five years of your loan and during this time you can take advantage of low interest rates and therefore low monthly payments. When you are only going to stay in the home for a couple years you do not necessarily care about building equity and paying off the principal instead of just interest and so this type of loan can be a great option for you.

The biggest benefit of these home loans are the low interest rates in the beginning. These introductory rates are often referred to as teaser rates and they are what get people to look at the loans and consider them over all of the other options out there. The awesome thing about these rates is that they will often stay the same for as long as five years, which will give you an opportunity to either refinance when the time goes for the rate increase, sell the home, or budget for a monthly payment increase.

Before you assume that these loans are not for you, you should stop and consider your situation and where you plan to be in five years. Many times this is a great opportunity for you to get into a home and have very affordable monthly payments. Before you decide that this is or is not an option for you, you should consider the opportunity and learn as much as you can about it. You may be surprised to find that you are the type of person that this loan was created for!

By : IC