Adjustable_Rate_Mortgage by Nickpaborsky02

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									Title:
Adjustable Rate Mortgage


Word Count:
512


Summary:
The adjustable rate mortgage is a type of loan which will be secured on a home which has an interest rate
and monthly payment that will vary. The adjustable rate will transfer a portion of the interest rate from the
creditor to the homeowner.



Keywords:
mortgage



Article Body:
The adjustable rate mortgage is a type of loan which will be secured on a home which has an interest rate
and monthly payment that will vary. The adjustable rate will transfer a portion of the interest rate from the
creditor to the homeowner. The adjustable rate mortgage will often be used in situations where fixed rate
loans are hard to acquire. While the borrower will be at an advantage if the interest rate falls, they will be at
a disadvantage if it rises. In places like the United Kingdom, this is a very common type of mortgage, while
it is not popular in other countries.


The adjustable rate mortgage is excellent for homeowners who only plan to live in their homes for about
three years. The interest rate will typically be low for the first three to seven years, but will begin to
fluctuate after this time. Like other mortgage options, this loan allows the homeowner to pay on the
principle early, and they don't have to worry about penalties. When payments are made on the principle, it
will help lower the total amount of the loan, and will reduce the time that is necessary to pay it off. Many
homeowners choose to pay off the entire loan once the interest rate drops to a very low level, and this is
called refinancing.


One of the disadvantages to adjustable rate mortgages is that they are often sold to people who are not
experienced in dealing with them. These individuals will not pay back the loans within three to seven years,
and will be subjected to fluctuating interest rates, which often rise substantially. In the US, some of these
cases are tried as predatory loans. There are a number of things consumers can do to protect themselves
from rising interest rates. A maximum interest rate cap can be set which will only allow interest rates to rise
at a specific amount each year, or the interest rate can be locked in for a specific period of time. This will
give the homeowner time to increase their income so that they can make larger payments on the principle.


The primary advantage of this loan is that it lowers the cost of borrowing money for the first few years.
Homeowners will save money on monthly payments, and it is excellent for those who plan on moving into a
new home within the first seven years. However, there are risks to this type of mortgage that must be
understood. If the owner has problems making payments, or runs into a financial emergency, the rates will
eventually rise, and the owner who cannot make payments may lose their home.


One term that you will hear lenders talking about is caps. The cap can be defined as a clause that will set the
highest change possible for the interest rate of the loan. Homeowners can set up a cap on their mortgage, but
they will need to make a request from the lender, as the cap may not be present on the rate sheets that are
presented.




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