Adjustable Rate Mortgages


 

What is an adjustable rate mortgage?

Adjustable Rate Mortgages (ARMs) are based on a 30-year term and are represented by two numbers (i.e. 5/1 ARM). The first number indicates the initial fixed-rate period and the second number indicates how many years after the fixed-term until the rate can be adjusted.

In general, the shorter the fixed-rate period, the lower your initial rate will be. Once the fixed period is up, your loan payment is recast using the remaining loan balance.

Benefits of an ARM

On average, most people only stay in their mortgage 5-7 years before selling or refinancing and an ARM allows buyer’s to pay. Today’s ARMs are limited on how often and by how much your rate can increase so you’ll never have to deal will a “balloon payment”.

  • Interest rates are typically lower than comparable fixed-rate mortgages
  • After the fixed-rate period ends, rates can go even lower
  • More of your payment goes toward the principle
  • Sell or refinance at any time
  • No pre-payment penalties
  • Lower rates

Tax Law Changes Affecting Mortgage & Home Equity Interest Deductability

Important Information About The New Tax Law Changes Affecting Mortgage & Home Equity Interest Deductibility

We’d like to pass along some important information about mortgage interest deductibility on your federal tax return.  As many of you may be aware, the new tax law caps deductibility of interest on first mortgages, and eliminates deductibility on 2nd mortgages and Home Equity Lines of Credit (HELOC’s)…with two exceptions.

The Exceptions Are:

  1. If your HELOC is used for home remodeling, the interest on the HELOC is still deductible.
  2. If the HELOC was used as part of the purchase of your home, the interest is still deductible.Also, the interest on 1st mortgages is still deductible up to $750,000… Interest paid on a mortgage above $750,000 or a combined amount of a 1st mortgage and 2nd HELOC above $750,000, however, is not.

It’s always a good idea to check with your financial/tax advisor as well.

The Bottom Line: 

It’s a good time to discuss with us whether combining a 1st and 2ndtogether into one mortgage, to preserve your interest deduction, would be beneficial.

Rates on HELOC’s are moving up with every increase by the Fed… So take the time to give us a call while rates are still in a historically low range. We’re always available to answer your questions and help you with ‘0 cost mortgages’ when you purchase a new home or refinance.