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An adjustable rate mortgage (ARM) can be very attractive. The lender seduces you with a low rate, but you
have to read the fine print. Your mortgage is just that - adjustable. Thus, the intrest on your ARM can
change from one month to the next. When interest goes down, everything's great; it saves you money
every month. But, when they go up, your mortgage becomes more expensive. Be careful if you have an ARM.
Most programs have a fixed rate of interest at first. The mortgage usually be stable for three or five
years. After that, the interest rate will vary. The interest rate usually is determined by
the prime rate, reserved for great customers with pristine credit. The rate may be 1% over the prime rate.
Changes to your mortgage entail changes to the monthly payments. Payments can be unpredictable and will
change when interest rates are volatile. Make sure you can afford to cover
changes each month. This is just how it works. You have to be ready for changes to your montly payment.
But, there is an advantage. They start out cheap. The programs offers a lower interest than a fixed rate
mortgage. You start out ahead, and you stay ahead if rates are going down. The ARM does the refinancing for
you! There is
no need to get a new mortgage as rates go down. Of course, if it goes up, the loan is no longer a bargain.
A good strategy is to start with an ARM. It will give you a lower rate for the first few years. When the the
interest becomes variable, refinance out of your mortgage and into a another program. You start with an ARM,
but you will only keep it for a few years. This
program can help you save some money early in the term, and you can build equity in your home more quickly.
This type of loan can be risky, but it may be worth the risk. Ask your broker if this is right for you.
Asking about an adjustable loan could
put tens of thousands of dollars back in your pocket. Explore the alternative; It may be worth your time.
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