What is an Adjustable Rate Mortgage?
These loans generally begin with an interest rate that is 2-3 percent below a comparable fixed rate mortgage, and could allow you to buy a more expensive home. However, the interest rate changes at specified intervals (for example, after the first two years) depending on changing market conditions; if interest rates go up, your monthly mortgage payment will go up, too. However, if rates go down, your mortgage payment will drop also.
• An adjustable rate mortgage (ARM’s) is a mortgage that has a rate that does not stay the same for the life of the loan. It is usually fixed for a certain period of time and then can fluctuate based on the terms of the loan. Adjustable rate mortgages are usually used to keep payments as low as possible while either improving credit or because of the uncertainty of how long a borrower might be in a property. What is an interest only loan? Are they smart loans? • Interest only loans are mortgages in which a borrower only pays off the interest and does not pay any principle off of the loan. They are again used to keep payments as low as possible. These loans are becoming more and more popular and can definitely be used to a borrowers’ advantage. It is important, however, that the borrower fully understands how the interest only loan works and has a plan or reason for the interest only loan. How can I improve my credit score?
With Adjustable-Rate Mortgages (ARMs) interest rates are tied directly to the economy so your monthly payment could rise or fall. Because you’re essentially sharing the market risks with the lender, you are compensated with an introductory rate that is lower than the going fixed rate. How often does the interest rate change? That depends on the loan. Changes can occur every six months, annually, once every three years or whenever the mortgage dictates. How much can my rate change? Your ARM will stipulate a percentage cap for each adjustment period, which means your interest may not increase beyond that percentage point. If the market holds steady, there may be no increase at all. You may even see your payment decrease if interest rates fall. How are the changes determined? Every ARM loan is tied to a financial market index, such as CDs, T-Bills or LIBOR rates. Your rate is determined by adding an additional percentage (known as a margin) to that index’s rate. When the index rises or fa
An adjustable-rate mortgage (ARM) is a loan with an interest rate that adjusts on a regular schedule, usually once or twice a year. The interest rate and payments rise and fall with the index that the loan is based on (such as the Treasury Bill, Cost of Funds or LIBOR.) Most ARMs come with an interest rate cap that limits the total amount your rate can change over the life of the loan. In a traditional ARM, although the payments may be adjusted based on changes in the index, the payments are fully amortizing, meaning the borrower’s obligation is satisfied at the end of the term, assuming all payments are made as scheduled.
