Related Sponsors

Adjustable Rate Mortgages

Home » Real Estate » Should I get a Fixed or Adjustable Rate Mortgage? » Adjustable Rate Mortgages

Adjustable rate mortgages, commonly referred to as ARMs, are loans where the monthly interest rates and payments fluctuate up and down according to the market. They are typically adjusted annually although there are some that adjust more frequently. Although the rates can rise, there is usually a cap on the amount it can be raised in a year's time and for the life of the loan. So for instance if your cap is three points per year and 7 for life you could start out at 6% and rise to 9% the second year, 12% the third, and 13% the next where it would be capped. At first this might sound a little crazy, but it can work for those who want to buy a larger house with the hopes that their income will be going up from year to year. Often to make the deal look a little sweeter, lenders will set a period of time that they will honor the lower rate before adjusting. This time period could rage anywhere from 1 to 10 years. In this case, the buyer might be paying much less than someone with a fixed rate for the first 10 years and then much more for the next 20! Just like ice cream there are lots of "flavors" of adjustable rate mortgages and this is a definite time when shopping around is necessary. Ask questions, research information, and talk to lenders. Many times they can mold a plan that works just for you and your needs.

Next Page: Advantages and Disadvantages of Adjustable Rate Mortgages

Related Should I get a Fixed or Adjustable Rate Mortgage? Articles