How do ARMs (adjustable rate mortgages) work?
With an adjustable rate mortgage, the interest rate changes periodically throughout the loan. Typically, the interest rate on the loan is tied to one of several financial indexes. At specified intervals, the rate will be reset based on the current index rate. That means when the loan rate adjusts, your monthly payments will change based on the current index rate. Make sure to read all the specific details of the ARM and calculate some sample increases to make sure you can afford the changes before signing any documents. Some ARMs put ceilings on the payment increases or interest rate either for each adjustment period, the life of the loan, or both. This type of loan has received some bad press because people were using it to bite off more than they could handle. There is nothing inherently bad with this type of loan. But, like any financial decision, you need to carefully weigh your options, your current and future financial situation and make educated decision based on what is right f
