Adjustable Rate Mortgage Loans

As we all know, when you take out a loan, you will need to pay interest on that loan. There are two types of interest rates for loans: fixed and variable. Here, we will be discussing adjustable rate mortgage loans.

An adjustable rate mortgage (or ARM) starts with a fixed rate for a number of years, followed by rate adjustments. As such, your monthly payments could increase or decrease. This means it could in the long run save you money on your mortgage. Alternatively, it could cost more if rates increase.

ARMs are flexible and offer potential savings for the low, fixed rate period. There are a number of rate and payment limits for ARMs, which can limit the size of your payments. These include how much the rate can change each time it is adjusted, known as Caps, and the total amount of the rate change over the life of the loan, or Ceiling.

The downside of an ARM is that they are more complex that fixed rate mortgages. Your payments could go up as well, if interest rates increase after the adjustment period starts. They are harder to plan for, as well, due to the potential rise or fall of interest rates, and other expenses, which may occur. ARMs sometimes have a prepayment penalty. This fee can be charged if you plan to sell your home or refinance the loan.

As with fixed rate mortgages, there are a number of different types of adjustable rate loans, such as FHA Loans, and WHEDA Home Loan Solutions. Contact our experts at ProVisor to learn more about adjustable rate mortgage loans.