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Dear Homeowner,
There are many options currently available for financing a home. One of these is an adjustable-rate mortgage or ARM. This type of mortgage offers a lower interest rate at the beginning than a comparable fixed-rate mortgage. The potential drawback is the rate can change your payment according to economic conditions. These loans generally require a 10 percent down payment, but some go as low as 5 percent.
There are many ARMs available, but all contain these components:
- Initial interest rate: Usually about 2 to 3 percent lower than a similar fixed-rate mortgage.
- Adjustment interval: The time between changes in the mortgage’s interest rate. Typical intervals are one year, three years and five years.
- Index: The economic indicator or indicators used to determine changes in the ARM interest rate.
- Margin: The additional amount the lender adds to the index to set the ARM’s actual interest rate.
- Cap: A safeguard that limits the risk of sharply higher payments. For example, it can limit the amount the interest rate can change at each adjustment or set the upper limit of the interest rate.
Another type of mortgage has a convertible adjustable rate. This is an ARM with an option that allows conversion to a fixed-rate mortgage after a certain period. It offers the lower initial interest rate of a standard ARM with the possibility of locking in more predictable payments later.
For more tips on purchasing a home, call Val Ogletree Real Living Sugar Pine Realty at (209) 559-5725.
Realty Queen 