By Louis Jones 
Homebuyers review a variety of mortgage home loans when they are ready to buy a new home. With so many different types of home mortgages out there, it could become confusing for buyers. Reviewing important details about adjustable-rate mortgage home loans show borrowers what they can expect.
What are These Mortgages?
The adjustable-rate home mortgage loans don’t have a set interest rate that is secured like a fixed-rate loan. The interest rates change according to the current rates available through the housing market. There will be periods of time during the term of the mortgage where the borrower has the same interest rate, but at the end of each period, the rate goes up or down causing changes in how much the borrower pays each month for their mortgage. The type of adjustable-rate mortgage dictates how long the interest rate stays the same. These types include 1, 3, 5, 7, and 10-year adjustable-rate mortgages.
The standard increase or decrease in the interest rate ranges from 2 to 5 percentage points per year. However, it can increase by six percentage points, but the standard cap for these mortgages is 6, and the interest rate will never beyond that standard valuation.
How Do Borrowers get an Adjustable-Rate Mortgage?
They qualify for their specific mortgage home loan program. Conventional and FHA mortgage loans are available as an adjustable-rate mortgage. When applying for the mortgage home loan, the borrower must have qualifying credit scores, income, income-to-debt ratios, and have a stable employment history. For example, a borrower who wants an adjustable-rate conventional mortgage home loan will need at least a credit score of 620. They must also have two years on their current job, and an income-to-debt ratio of no more than 45%.
What Reasons Do Consumers Have to Choose An Adjustable-Rate Mortgage?
First, the income-to-debt ratio is often lower for an adjustable-rate mortgage than a fixed-rate option. The interest rate for the existing fixed-rate mortgage could be higher than average, and the borrower wants to try to lower it. If they plan to refinance their home mortgage loan at some point down the road, the adjustable-rate mortgage would make it easier to refinance and get lower payments. If the borrower wants to sell the home at some point before they pay off their mortgage, the adjustable-rate mortgage home loan would be a better choice and could keep payments lower than average.
What are the Major Drawbacks of the Adjustable-Rate Mortgage?
The borrower won’t get a notice when their interest rate will change, and they will see a sudden increase in their monthly payments. If the borrower is on a fixed income or is at some point while paying for their home, they could experience a financial hardship that leads to foreclosure.
Homebuyers choose adjustable-rate mortgage home loans because the loans don’t have a fixed interest rate. For some buyers, this could give them many advantages and help others qualify for the mortgage loan faster. Homebuyers who want to learn more about adjustable-rate mortgage home loans consider National Realty Investment Advisors now.