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Toll Brothers Offers Adustable Rate Mortgages

[Jul 15, 2009.]


Adjustable rate mortgages (ARMs) have fallen out of favor as the housing market has suffered, but one home builder thinks they could entice people to buy a home. Toll Brothers is offering a 7/1 ARM at 3.75% to homebuyers in some of its housing communities. The luxury home builder says it hopes the mortgage loans will appeal to buyers who plan to move or refinance within seven years.

How Much Mortgage Can I Afford?

The adjustable rate mortgage also might appeal to people who are wondering "how much mortgage can I afford" in this economy.  Although mortgage interest rates remain low and housing prices have dropped, some potential homebuyers remain concerned about further dips in the economy and rising unemployment. Toll Brothers' ARM locks in the low rate for seven years and caps rises in the interest rate after that to 8.75%.

ARMs vs. Fixed-Rate Mortgages

The offer is only available for mortgage loans of $417,000 or less. Only time will tell whether homebuyers will dip their toes back into the ARM waters. Many homeowners have avoided ARMs for the predictability of fixed payments with 30-year mortgages. But some lenders still offer ARMs, which may work for certain homebuyers. So what should people consider when comparing fixed-rate mortgages with ARMs? They should ask themselves:

  1. If they can realistically expect their income to rise down the line. Additional income will be important if for some reason they are unable to sell or refinance their home after the intial seven-year period.

  2. If they intend to take on other large debts, such as tuition payments or an auto loan.

  3. If they will make additional payments on the principal to pay off their mortgage loan early.

Homebuyers Remain Cautious

Adjustable rate mortgage loans may still be a viable option for some homebuyers. But because of the economic uncertainty that many Americans are facing, there probably won't be a stampede of people applying for them.


About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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