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Freddie Mac: ARMs popular options for today's borrowers

Posted on Wednesday, January 28, 2015 at 9:30:32 AM

Opting for an adjustable-rate mortgage can be a tricky decision, if you don't do your research. A fixed-term period brings low rates, but then that number can soar as the years go by. However, savvy homeowners can use ARMs to their advantage.

According to Freddie Mac, several adjustable-rate residential financing options have become popular in today's economy. One type is the hybrid mortgage. This has the fixed rate for a set amount of time, then a flexible rate for the remainder of the term. Low rates are also commonplace today, with the one-year Treasury-indexed ARM averaging 2.39 percent.

"Hybrid ARMs include an extended initial period where the interest rate is fixed and lower than for a 30-year fixed-rate loan," explained Frank Nothaft, vice president and chief economist at Freddie Mac. "Because consumers who choose an ARM often are taking out a higher-balance loan, their payment savings can add up over the first few years of the loan."

If you are interested in an ARM, make sure you understand the flexibility of your rate. Certain products can fluctuate at different times, so know the details. This will prevent you from enjoying low rates for a few years then getting hit by a hefty mortgage payment. In certain cases, the ARM can be ideal for many borrowers.