Six Month Adjustable Rate Mortgage

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How Does a Six Month Adjustable Rate Mortgage Work?

Six Month Adjustable Rate Mortgage

One of the least popular mortgage loans is the Six Month Adjustable Rate Mortgage (6 Month ARM). The reason for this skepticism is, of course, the short period between interest rate adjustments; only six months. Then why does this loan even exist?

First, from the mortgage lender's prospective, this product protects them against having a long term fixed rate loan in their portfolio that could cost them serious income if market interest rates turn sharply upward. From a borrower' prospective, the rate differential between a 6 Month ARM and Fixed Rates may be so significant, the borrower may opt to enjoy these savings in the short term and be prepared to refinance to a fixed rate if interest rates show a longer term upward trend.

One situation that might make this loan a good choice for you involves your projected time of ownership of the property. Should you consider purchasing a home for strictly short term purposes and have firm plans on selling it within a couple of years, you might explore the savings you might enjoy if you use this loan. Just be very careful with your analysis and use worst case numbers to compare this loan with others.

   

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