I want to buy a house, but there is a good chance I will be transferred in the next five years. What kind of mortgage is good for me?
You could try an Adjustable Rate Mortgage (ARM). They can be very helpful if you don't plan to stay in your home.
With an ARM, you'll get a very competitive fixed rate for the first few years of your mortgage. Typically, ARM terms run from three to seven years, but you can also get a 10-year ARM. These introductory rates are locked in for the period, so you get low payments.
After the rate period, your interest rate will change, probably going higher. So if you plan to be in an area for just a few years, you can enjoy low payments at the beginning and sell before the adjustable rate phase starts.
Compare that to a fixed rate loan, which will never change, but will be higher in the first five years.
Lenders specify caps that limit the amount of the rate increase and payment in the adjustable phase. You'll want to look closely at this because, if your plans change and you stay in the home, you want to be able to afford the payments.
Although in this era, with mortgage rates increasing, it is actually possible that if interest rates fall, the adjustable payment could decrease.
You'll also want to check on a prepayment penalty fee. Some ARMs have them.
But ARMS might also be good for homeowners who can and will pay off their home before the adjustable period begins. This could be because their income is uneven — maybe they get large bonus or commission payments at the end of the year — but they want to pay lower monthly payments. In that case, they might make lump sum payments to the principal at the end of the year and then refinance.
Be completely sure you understand all rules, fees and structures of the ARM. It can be complicated, but it might also be right for your situation