Wednesday, August 7, 2013

What You Need to Know about ARMs

Thinking of getting an adjustable rate mortgage (ARM) now that interest rates are rising?  Here's what you need to know:
  • The interest rate of every ARM is designed to go up.  Yes, it can also go down, but lenders are hoping it will go up so they'll make more money.  The industry term for the initial interest rate of an adjustable rate mortgage is a "teaser rate" because the lenders are teasing you with an interest rate that they know will probably go up in the future.
  • You need to know how often the interest rate will change.  How long is it fixed before it changes, and how often does it change once it starts changing?
  • You need to know the interest rate caps.  Every ARM has three interest rate caps: the first cap is how much the rate can change the first time it changes, the second cap is how much it can change every time after that, and the third cap is the most it can change over the life of the loan. 
  • You need to know how the new interest rate will be calculated.  All ARMs have both an index and a margin.  The index fluctuates, depending on how the financial markets are doing, and the margin is a fixed number that gets added to the index to determine your new interest rate.  Index + margin = new interest rate.
Adjustable rate mortgages are getting popular again, but they are definitely not for everyone.  If you have any questions at all about how ARMs work and whether they are appropriate for you or one of your clients, just give us a call and we'll explain them in detail.

Getting a loan approved is easy - if you know what to do.  The Mortgage Experts know what to do!!!  

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By the way, don't forget to refinance your current mortgage.  Rates are very, very low right now.  Don't miss out!  Call us today to get the details for your particular situation.

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