Adjustable Rate Mortgages

ARMs are debated, berated, ignored and adored. Here's a list of terms to help you become well-armed with an understanding of the basic components of adjustable rate mortgages.

Initial Rate - The loan's starting interest rate. Some ARMs have initial rates that change after the first month while others have initial rates that are fixed for several years. By reducing your monthly payment, a lower initial rate allows you to qualify for a larger mortgage.

Index - The basis that determines how much the lender must pay to obtain the funds it lends you. The index rate increases or decreases in response to changes in money market conditions.

Margin - The fixed percentage that represents the lender's profit. The margin is added to the index to determine the ARM's interest rate. You'll save money over the long term by choosing an ARM with the lowest available margin.

Cap - A limit to the amount that a loan's interest rate may increase or decrease. A periodic cap, generally 2%-3%, limits the interest rate change at any adjustment period. A life cap, generally 6%, limits the interest rate change over the life of the loan.

Learn about the wide variety of adjustable loans available today. You may find that an ARM will save you money or stretch your purchasing power.

If you have questions about loan programs, please call me. Locating excellent loan programs and properties that are wise financial investments are important services I provide for my clients