Adjustable Rate Mortgages
Adjustable-rate mortgages (also called ARMs) feature an interest rate that periodically adjusts with changing market rates. ARMs are attractive because they offer start rates that are lower than the interest rates of fixed rate home loans. This typically enables you to begin with lower monthly payments and qualify for a larger loan. ARMs are available in government, conforming and jumbo loan amounts. A start rate, also known as the initial interest rate, gives you a special low monthly payment for a set amount of time. After the start rate period is over, your interest rate is based on the performance of a financial index, such as the average interest rate or yield on treasury bills. For a better understanding and a historical perspective, see ARM financial indices. Before you agree to an ARM, be sure you can afford the highest payments that would result. Choose an adjustable-rate loan if you:
- Need extra borrowing power
- Need a lower initial rate to afford to buy the home you want
- Want to save money in the first few years of home ownership
- Plan to move or refinance in a few years
- Are confident your income will rise enough in the coming years to handle any increase in payments
- Are purchasing or refinancing at a time when interest rates are comparatively high
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