Based on recent trends in the housing market, you might be feeling like buying a new home is no longer within arm’s reach. But, don’t hang up your homebuying dreams just yet. Your loan experts at Wintrust Mortgage are here to help you find the perfect solution on your homebuying journey, even in today’s seemingly unpredictable market.

One popular option for homebuyers in a market characterized by higher interest rates for a fixed-rate mortgage is opting instead for an adjustable-rate mortgage (ARM). An ARM is a loan with an interest rate that varies depending on how market rates change over time. This type of loan includes an introductory period of a fixed interest rate, which can last for up to 10 years. After that, the interest rate will be determined by fluctuations in the market.

What are some of the benefits of an adjustable-rate mortgage (ARM)?

• Lower initial rate. ARMs offer an initial interest rate that’s lower than a conventional fixed-rate mortgage. This lower rate remains the same throughout a fixed period of time at the beginning of the loan term (5, 7, or 10 years). The interest rate only then adjusts periodically based on changes in a pre-selected index once the introductory fixed period expires. 
• Lock in the rate. When interest rates are on the rise, it may be beneficial to the borrower to be able to lock in the rate of an ARM for up to 90 days without having to pay a premium in pricing in the future.
  
• Limitations in rate adjustment. The interest rate of an ARM doesn’t balloon once the introductory period of the loan expires. Rates can only adjust once every six months after the introductory period, with a lifetime cap of 5% above the starting rate.
• Eligible for refinancing. ARM loans carry no prepayment penalties, which means they are always eligible for refinancing. This allows borrowers the opportunity to take out a home loan at a lower rate during the introductory period, and then refinance to a conventional fixed-rate mortgage if rates become more favorable. Refinancing can take place either before or after the introductory period of an ARM expires, allowing a borrower to maintain more control over the loan.
• Build equity faster. The money saved every month during the introductory period of an ARM can be put toward the principal (the amount of money borrowed), shortening the length of the loan (and thereby saving money on interest over time), and giving the borrower an opportunity to build home equity faster.
• Take advantage of reduced competition. Due to recently low interest rates, the market has been characterized by surging demand, bidding wars, and a lower number of listed properties. When interest rates rise, this typically prompts many potential buyers to back out of the market, which might in turn lower selling prices and raise available inventory. ARMs offer potential buyers the opportunity to continue searching for a new home despite rising rates, and take advantage of this buyer-friendly shift in market dynamics.

Don’t let yourself get priced out of buying a new home. No matter how the housing market looks, Wintrust Mortgage has loan options that work for your unique circumstances. Reach out to get in contact with a loan expert to discuss all of your homebuying options!

For more information on ARM mortgages, click here to view/download the Consumer Handbook on Adjustable-Rate Mortgages (CHARM booklet).