First Time Home Buyers in Rhode Island & Massachusetts - Is the Answer an Adjustable Rate Mortgage

In today's housing market, adjustable rate mortgages (ARMs) can be a way for first-time homebuyers to break into the market, especially considering high interest rates on fixed-rate mortgages.

Reasons to Consider an ARM

Affordability Advantage: Let's face it, saving for a down payment and qualifying for a mortgage can be tough, especially for first-time buyers. ARMs typically boast lower initial interest rates compared to fixed-rate mortgages. This translates to potentially lower monthly payments in the crucial initial years, making homeownership more attainable.

Breaking Free from Rent Hikes: Consider the ever-increasing cost of rent. While mortgage payments might fluctuate with an ARM, they can offer more stability and predictability compared to the whims of the rental market. Over time, rent payments typically trend upwards, putting a strain on your budget. Owning a home, even with an ARM, allows you to potentially lock in a payment structure (at least for the introductory fixed-rate period) and build equity in your property.

An ARM differs from a fixed-rate mortgage in that the interest rate attached to the loan can fluctuate throughout the life of the loan based on an index of treasury bonds. Initially, ARMs offer a lower interest rate compared to fixed-rate mortgages, making them particularly attractive for borrowers seeking lower initial payments. However, it's vital to understand that your monthly payments can change over time.

Flexibility for Future Plans: Maybe you're starting your career and unsure of where life will take you in the next 5-10 years. The beauty of an ARM is its flexibility. If you plan to stay in your home for a shorter period, ideally within the introductory fixed-rate window (typically 3-10 years), you can leverage the lower initial rate and potentially sell the house before the interest rate adjusts. This allows you to enjoy the benefits of homeownership without the long-term commitment of a fixed-rate mortgage.

What are the Risks?

Interest Rate Fluctuations: This is the biggest concern. After the introductory period ends, the ARM's interest rate can adjust based on the market.

The Bottom Line:

ARMs can be a powerful tool for first-time homebuyers to enter the market, especially with rising fixed interest rates and the ever-increasing burden of rent. However, careful consideration of your financial goals, risk tolerance, and long-term plans is essential. Consulting with a qualified mortgage consultant can help you understand your options and choose the loan that best suits your situation.

An option for first time homebuyers to consider, SCU Credit Union offers a 5/5 Adjustable Rate Mortgage. If you’d like more information, you can stop in at one of our branch locations for assistance or reach out to our member service call center at 781-784-7725 or toll free at 1-877-661-3300.

More information about Adjustable Rate Mortgages