A hybrid adjustable-rate mortgage (ARM) is arguably the best home loan you will find in Oklahoma. Since it has a “honeymoon” period, its interest is fixed in the first years and is generally lower than typical mortgage rates. As a result, its initial monthly payments are manageable. Even if you have poor credit, you can enjoy a small down payment requirement if you apply for an FHA loan and your FICO scores are above 580.
After the introductory period, its interest rate can increase or decrease, as dictated by market forces. Nevertheless, any mortgage company in Tulsa or OKC will say that its rate adjustment is somewhat predictable due to a pre-determined cap. Is a hybrid ARM perfect for you? Here are the only scenarios where it is worth applying for:
When You Do Not See Yourself Staying Put Beyond the Introductory Period
A hybrid ARM is a sensible alternative to a 30-year fixed-rate mortgage if you intend to live in the property for a few years. If you see yourself moving and selling your house before or immediately after the introductory period is over, it is a viable option.
It allows you to maximize the benefits of low interest without having to face the uncertainty of higher payment triggered by rate adjustment.
However, think about the possibility that your plans can change in the future. If you suddenly decide to stay put longer than you initially expected, your strategy can backfire on you.
When You Plan to Refinance Eventually
Staying in the same property does not mean you should stick to your hybrid ARM until it matures. You could refinance it down the road and convert it into a completely fixed-rate mortgage.
There are many financially sensible reasons why it is wise to think about refinancing later on before buying a property. A hybrid ARM makes a low-cost temporary loan until interest rates go down and your credit scores improve in the future. If things go your way, you might be able to refinance your ARM before the first adjustment kicks in.
Again, there is no guarantee you can qualify for a refi when you apply. This uncertainty is a risk you have to take if you choose to play the long game.
When You Expect to Get a Raise Along the Way
The prospect of higher income can be an excellent justification to take out a volatile financial product like a hybrid ARM. Of course, you can’t be positive that you will get a raise or move to a higher-paying position before your loan’s interest rate is scheduled to change, but it is a gamble that could pay off generously.
When You Want to Make Additional Payments
Wanting to make extra payments that reduce your mortgage principal balance can work wonders for you. It can minimize your overall interest paid should you finish your loan without refinancing. It lets you build equity in your property more quickly too. Since an FHA loan does not come with a prepayment penalty, you have one more reason to pay your hybrid ARM off ahead of time.
The worst thing that you could happen when you have a hybrid ARM is that the interest hits the maximum limit, and your monthly payment becomes so high. If your finances can handle such changes, though, then the risks that come with the product have less power to turn your life upside down.