Adjustable Rate Mortgage

Adjustable Rate Mortgage

 

Another common type of home loan is the adjustable rate

mortgage or ARM. With this type of loan, the interest rate

will fluctuate depending on the 6 different real estate

indexes.

 

 

The interest rate changes so the lender of the loan gets a

proper margin. That’s due to the fact that the indexes

influence the cost of funding that loan in the first place.

 

Basically, your lender lets you take on a little bit of the

interest risk instead of just the lender like in a fixed

rate loan. This type of loan can be great if the interest

on your home loan consistently falls for a long time.

 

You don’t have to worry that much about the interest rates

because even if they jump drastically, there are limits on

how much your payments will increase.

 

These limits are called caps and mean that no matter the

size of the interest jump, you won’t pay more than a

certain increase in a certain time period.

 

As an example, let’s say a lender gives you an adjustable

rate mortgage. It has a 1 percent cap for any 6 month time

frame and a 4 percent total cap for the entire loan.

 

Your payments can increase as much as 4 percent at the

maximum until the loan is paid off. That’s not too shabby

if you consider when interest drastically drops, you save a

ton of money.

 

Every area in the country has different interest rates so

you should read up on it before you opt to go with an

adjustable rate mortgage.

 

Local newspapers usually include interest rates and

predictions so that is a great place to go to keep an eye

on things.