ARM Adjustable Rate Mortgages by cmlang


									by: Dan Lewis

Traditionally, homebuyers could look to two forms of mortgages fixed rate and adjustable
mortgages. While there are now many more options, this article takes a look at the adjustable rate

What is an ARM Loan?

An adjustable rate mortgage [ARM] is a basic mortgage with one important exception. With an
ARM, your interest rate will start low but typically move up throughout the link of the loan. The
timing of the movements is dictated by the terms of the loan. The rate may be adjusted every
month, but more typical periods are every six or twelve months. Most adjustable rate mortgages
also have a cap on the amount the interest rate can be raised in a particular period.

ARM Yourself?

A homebuyer has to be very careful when selecting an adjustable rate mortgage. Buying a home
necessarily involves budgeting out how much of a monthly mortgage rate you can afford to pay.
With an ARM, you have to keep in mind that your monthly payment amount will go up if the
interest rate does the same. While you may be able to afford the loan now, what happens if the
rate jumps two percent over the next two years?

In the current real estate market, potential rate increases are a troubling issue. In areas where the
real estate market is dramatically appreciating, homebuyers are using ARM loans to get into
homes. Put another way, they are using ARM loans to get a mortgage payment they can afford
without giving real consideration to rate increases in the future. Mortgage interest rates have
been at historic lows for the last few years. What is going to happen to all of these people when
rates rise? It could make the savings and loans crisis of the late 80s look like small potatoes.

If you are considering an adjustable rate mortgage, make sure you do the research. Find out how
often the rates can increase and by how much. Try to determine whether you can afford
payments if the rates go up significantly over the next few years. With Greenspan retiring, now is
the time to be very careful when taking on mortgage debt.

This article was posted on November 02, 2005

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