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Spin the Wheel of Mortgages—What about an Adjustable Rate Mortgage?
Although a 30-year fixed mortgage is the most popular option for physicians looking to buy a home, there are situations in which an adjustable rate mortgage may make the best financial sense. With great introductory rates, ARMs offer attractive starting rates, giving homeowners a boost in building equity, making improvements to a property, or even making a “dent” in student loans. However, at a set period (think 3-5-7-10 years), the borrower spins the wheel again and the mortgage rate is “re-set” at the current rate at that time. In addition, the rates are adjusted on a regular basis—usually annually—until you sell the home or pay it off.
When an ARM (Adjustable Rate Mortgage) Works
Jump-Start Your Equity. With a lower interest rate (sometimes as much as a point), homeowners can build equity faster in the initial term of an adjustable rate loan. If you make payments at the level of a 30-year fixed mortgage, you could be paying a few hundred dollars more on the principal of your home loan. At the end of the fixed portion of the loan, you may find yourself $5,000 or $10,000 closer to paying off your mortgage.
Don’t Assume Rates Will Increase. Although most physician borrowers choose a fixed rate mortgage because of the fear of rising interest rates, that is not always the case. There have been historical instances when rates were lower when an ARM pivoted from fixed to variable, offering the borrower even more value to their decision. Many lenders will convince you that “locking in a fixed rate” is the only option, but we have seen nearly 40 years of (generally) declining rates. With the job and income security enjoyed by physicians, you can afford a bit of risk for the chance of a future rate deduction!
ARMs are Perfect for Shorter Term Residency. We are not talking about medical school residency here. In your medical career, it is likely that you will change hospitals or practices, re-focus your specialty, open a new practice, or even move to another city or state. Since most people don’t remain in a home for 30 years, why should you borrow for 30 years? You are probably better off borrowing for that shorter term and then reconsidering a new loan when you purchase a new home.
Lenders of All Kinds
In this series, we have been featuring lenders who understand the unique financial needs of physicians and other medical professionals. These financial institutions help doctors through the mortgage process, recognize their income potential and stellar repayment reputations, and offer outstanding rates. Although not all lenders offer a designated physician mortgage program, the last few banks we will cover still recognize the financial strength of medical professionals and strive to provide them with the most exclusive lending rates and terms.
First organized in Shelbyville, Kentucky in 1977, Republic Bank & Trust Company earned its name and headquarters in Louisville in 1982 and has continued to expand since then. A series of mergers and acquisitions has allowed the institution to become an outstanding performer in the banking industry, recognized by Freddie Mac in 2009 for its mortgage servicing. An outstanding mid-size bank, Republic has located in Florida, Indiana, Kentucky, Ohio, and Tennessee. Offering a wide range of mortgage services, this lender is known for its commitment to communities across the State of Kentucky, supporting Habitat for Humanity and donating multiple 4-year scholarships to needy students in the area. Recently, charitable organization Goodwill Industries honored the lender by naming it a 2020 Partner in Philanthropy.