What are the disadvantages of an adjustable-rate mortgage?

Cons of an adjustable-rate mortgage Rates and payments can rise significantly over the life of the loan, which can be a shock to your budget. Some annual caps don’t apply to the initial loan adjustment, making it difficult to swallow that first reset. ARMs are more complex than their fixed-rate counterparts.

Why is an adjustable-rate mortgage a bad idea?

While it may seem beneficial at first glance, an ARM payment cap could actually prevent your mortgage payment from fully covering future interest increases. This results in negative amortization, which means your loan balance would go up instead of down with each payment.

What is the average adjustable-rate mortgage?

The average starting rate on adjustable-rate loans with an initial fixed-rate period of five years was 4.04 percent, compared with 5.09 percent for a fixed-rate loan, as of Thursday, according to Freddie Mac.

What was the mortgage interest rate in 2013?

Mortgage rate trends over time

Year Average 30-Year Rate
2013 3.98%
2014 4.17%
2015 3.85%
2016 3.65%

What was the lowest mortgage rate in 2013?

Mortgage rates in 2013 Mortgage borrowers saw rates hit bottom in the first half of 2013, but soon they were forced to say goodbye to those low rates. The 30-year fixed mortgage rate reached its lowest level of the year, 3.52 percent, in early May, according to Bankrate’s weekly survey.

How are adjustable rate mortgages calculated?

How Adjustable Rate Mortgages Are Calculated The method for calculating interest rates on ARMs is based on a simple mathematical formula: index rate + margin = interest rate. The index rate typically is based on one of three indexes: the London Interbank Offered Rate (LIBOR); the one-year Treasury Bill; or the Cost of Funds Index (COFI).

Are adjustable rate mortgages making a comeback?

Adjustable rate mortgages are making a slow comeback thanks to rising interest rates. Experts warn that this option only favors those who expect to live in the home for a short term. Adjustable Rate Mortgage – Universally known as ARMs – have cleaned up their image enough to once again be considered a useful product in the home-buying market.

What is a hybrid adjustable rate mortgage?

Today’s “hybrid ARMs” offer a break on interest and a fixed payment amount for the introductory period before reverting to adjustable rates at the 3, 5, 7 or 10-year mark. Right now, that break doesn’t amount to much, given how low interest rates are for 15-and-30-year mortgages.