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Pros
- Lower interest rates
- Easier to qualify
- Rates adjusted based on particular index which gauges inflation
- Equitable situation for lender and borrower
- Various indexes and adjustment periods available
- May be converted to fixed-rate
- Good for use in times of low inflation and for short-term ownership
- Initial, "teaser," rates reduce payments for the first
year
Cons
- Interest rates fluctuate with economy
- Buyer's situation may change
- Buyer may over-leverage with unrealistic low initial
"teaser" rates
- Buyer may not fully understand ARM and be unaware of an unfavorable
index
- Convertible ARM usually has a conversion fee to change to fixed rate
- Lender may charge high margin which is added to the index
Return to Financing
Information
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