Does an Adjustable-Rate Mortgage Make Sense Now?

Fixed rate mortgage rates are higher than last year. Should you go with an ARM?

May 25, 2014 at 9:55AM

Last year, the threat of Federal Reserve tapering of its bond-buying activities sent mortgage rates soaring. But adjustable-rate mortgages are still at very low rates. Does it make sense to go with an ARM, and do Bank of America (NYSE:BAC), Citigroup (NYSE:C), and other lenders benefit from them more than from fixed-rate mortgages?

In this following video, Dan Caplinger, The Motley Fool's director of investment planning, discusses the pros and cons of adjustable-rate mortgages. Until last year, fixed-rate and adjustable-rate mortgage rates were very close to each other, giving borrowers less incentive to take the risk of adjustable-rate mortgages. Now, though, there's a big short-term benefit to using an ARM, but with the risk that interest rates will rise and boost your monthly mortgage rates. Dan warns that many homeowners got themselves in trouble in the mid-2000s by relying on low monthly payments that later rose. Bank of America, Citigroup, and other mortgage lenders stand to benefit either way, as they tend to get paid based on transactional fees rather than the actual interest income. As long as you're ready for inevitable rate increases down the road, though, an ARM is a reasonable way to save money in the short run, especially if you believe that the Fed will keep short-term rates low.

Big banking's little $20.8 trillion secret
There's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional bricks-and-mortar banks. That's bad for them, but great for investors. And amazingly, despite its rapid growth, this company is still flying under Wall Street's radar. To learn about about this company, click here to access our new special free report.

Dan Caplinger owns warrants on Bank of America. The Motley Fool recommends Bank of America and owns shares of Bank of America and Citigroup. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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