How much will your home rent for?
An ARM is a mortgage where the interest rate is not fixed but changes over the life of the loan. ARMs are often called variable or flexible rate mortgages. Adjustable rate mortgage (ARM) often feature attractive starting interest rates and monthly payments. But you face the risk that your payments will rise. Pluses of ARMs include:
Some of the pitfalls of ARMs include:
Tip: It pays to get an ARM if you are buying a starter home or expect to move or be transferred in two to three years.
Recommendation: You should consider a fixed rate loan over an ARM if you
When you shop for an ARM (or for any other adjustable rate loan), you should carry the following checklist of questions to ask lenders:
You are comparing ARMs offered by two different lenders. Both ARMs are for 30 years and amount to $65,000. Both lenders use the one year Treasury index, which is 10%. But Lender A uses a 2% margin, and Lender B uses a 3% margin. Here is how the difference in margin would affect your initial monthly payment:
|Lender A||Lender B|
|ARM Interest Rate||12%(10%+2%)||13%(10%+3%)|
|Monthly Payment||$668.60 @12%||$719.03 @13%|