Will an adjustable rate mortgage get me the most bang for my buck?

Home owner who apply for an adjustable home mortgage certainly aren't playing the slots in Vegas. But the adjustable mortgage market isn't a precise science, either. Adjustable mortgages begin with an interest rate lower than fixed mortgages, but they have the potential to increase well beyond fixed interest rates. When you apply for an adjustable mortgage, you should be analyzing market trends in order to predict that interest rates won't significantly rise.

Who should apply for an adjustable mortgage?

Because adjustable mortgages involve a modicum of "predicting" the future, they work best for home owners who intend to sell their homes in the near future. Let's say you're a home owner who can afford to finance a $2,000 monthly mortgage payment at 8.25% APR. You're offered a fixed mortgage at 7% APR and adjustable mortgage that ranges from 5.25% to 9.5% APR.

The consumer alternative to an adjustable mortgage is a fixed mortgage. You can learn about financing your Idaho home mortgage with a fixed APR here [link to page 2]. You can also find out about refinancing your current Idaho home mortgage.

When Adjustable mortgages turn sour

You opt for the adjustable mortgage starting at 5.25% with $1,400 monthly mortgage payments, and just look at all the money you're saving! Compared to the 7% fixed APR with $1,700 payments, you're saving $300 per month! But three years into your loan, the market shifts, and your interest increases to 6.9%. One year later, your paying 7.5% APR. Finally, six years into your loan, the market has completely changed and you're paying double what you started: 10.5% APR.

Unfortunately, you and your spouse's careers haven't advanced as fast as you would have like, and your oldest daughter is starting college next year. The most you could possibly afford in monthly mortgage payments is 9%APR, and that's pushing it. To make matters worse, your property value is now $35,000 less than the amount of money your still owe on the mortgage: selling is no longer an option. Suddenly, making your monthly mortgage payment is a financial emergency. Learn about mortgage deals on the next page.