Adjustable Rate Mortgages Offer
Alternatives For Home Buyers
by: W. Troy Swezey
When looking for a
mortgage to meet your needs, consider these key
questions: Is your income expected to increase in the
coming years? How long do you plan to live in your
new home? And, which mortgage will provide the lowest
interest rate?
While 15 or 30 year
fixed-rate mortgages are the most popular, and Adjustable
Rate Mortgage (ARM) offers some interesting
alternatives for home shoppers who plan to move again
within four or five years. Although interest rates
are the lowest they’ve been in 20 years, an ARM
provides even lower interest rates during its
introductory period.
An Adjustable Rate
Mortgage is a home loan with an interest rate that
fluctuations with market interest rates. Instead of
paying the same rate of interest over the life of the
loan, as you would with a fixed-rate mortgage, you
usually pay a lower interest rate the first four or
five years. Your interest rate then changes in
accordance with certain rate indexes.
However, ARMS come with
maximum caps on how much the interest rate can
increase in a single period (usually a year) and how
high the rate can go during the entire life of the
loan. Usually, the overall maximum cap is six
percentage points, and the annual cap is two points.
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