Teachers normally have long-term and stable jobs. Yes, some have been suffering layoffs recently, but teachers are still prime candidates for home loans. When considering a home loan, and adjustable rate mortgage, or ARM, will be an option. Teachers need to know why or why not an ARM is attractive.
Most teachers plan on a long career. Many choose to be at the same school for years. This alone is a reason to not be enticed into an ARM adjustable rate mortgage.
An ARM will give you a very low interest rate for a set number of years. Typically five. After that the interest rate can go up, down, or stay the same. The benefit is that you get a low payment for five years. The trade off is a higher payment that may be unaffordable.
Why are teachers not a good candidate for ARM mortgages? Because one of the reasons to get an ARM is the home buyer is normally looking to move after a couple of years. Teachers are stable and don't move often. If you know you will be staying in your house for many years. stay away from an ARM.
Teachers are also college educated and need to look at the history of mortgage rates. One enticing reason for an ARM is the chance at getting a lower interest rate. Well, there is no such guarantee. Interest rates rise and may rise quite high.
Teachers who do a little research will also know that home prices do not keep going up and up. This is another come-on for ARM mortgages. The enticement is that your home will increase largely in value, then you can refinance for a better deal after five years. This has caused many home owners to lose their homes. Their homes did not increase in value. In fact, they dropped.
Now these homeowners were stuck with a mortgage payment that increased and a home that dropped in value.
This history is recent and should not be ignored.
Even if you think you will move in a couple of years, what happens if the home value drops? You will not have built any equity and will be selling a house for less than you owe.
Teachers should really look close at their home buying choices. Nothing beats a fixed 30-year rate.
When does an ARM make sense? It rarely makes sense given the recent mortgage crisis. It would make sense if you are planning on selling your home after a couple of years AND you were absolutely certain that the home would increase in value. If not, and those are big ifs, you are gambling.
Teachers have stable, long term careers. Make your home buying choices the same.
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