Futterman, Sirotkin And Seinfeld, LLP
Futterman, Sirotkin And Seinfeld, LLP

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When buying real estate, pay attention to mortgage rates

On Behalf of | Jun 21, 2022 | Real Estate |

Whether a person is a first-time home buyer or they have experience in purchasing property in New York, the process can be simultaneously exciting and fear-inducing. It is a major financial commitment and challenges can arise without warning. Whether the property itself has flaws discovered on inspection, there is competition to make the winning bid or other obstacles present themselves, being prepared is imperative. Getting a mortgage might be the most complicated aspect of the process and having legal help from the outset is key.

Adjustable rate mortgages can rise, causing problems for buyers

Once the decision is made to buy, mortgage rates can be a concern. A mistake many buyers make is not knowing the potential negatives of an adjustable rate mortgage. Since the rates may initially be lower than they would be with a fixed-rate mortgage, the adjustable rate mortgage (also called an ARM) can be beneficial, at least at its outset. There is certainty with a fixed-rate; ambiguity with an ARM. It is up to the buyer to have the right information and advice to know whether which is better for them.

Currently, interest rates are still relatively low even with recent increases. The fixed-rate has been slightly higher than 5% in recent months. That is up from less than 3% in late 2021. Recently, an ARM has been slightly more than 4%. In general, people tend to prefer the safety in knowing what their rate will be and that it will not change, but that hinges on myriad considerations. Around 9.4% of mortgages in May 2022 were ARMs. There are different durations for which people can have an ARM. For example, with a 5/1 ARM, the rate will be fixed for five years before it can change.

People buying a home should understand mortgage rates and consequences

For some real estate buyers, the adjustable rate mortgage is a wise strategy. They have the means to pay if it rises and the rates when they purchased made it worthwhile. For others who needed the lower rate to cover the expenses and who will struggle to make the payments if they rise to a certain level, it might be better to consider alternatives or look for a property that is more affordable for them. To address issues at any time during the process, it is always useful to have experienced and professional legal help.