Adjustable Rate Mortgage

Another common type of home loan is the adjustable rate
mortgage or ARM. With this type of loan, the interest rate
will fluctuate depending on the 6 different real estate
indexes.

The interest rate changes so the lender of the loan gets a
proper margin. That's due to the fact that the indexes
influence the cost of funding that loan in the first place.

Basically, your lender lets you take on a little bit of the
interest risk instead of just the lender like in a fixed
rate loan. This type of loan can be great if the interest
on your home loan consistently falls for a long time.

You don't have to worry that much about the interest rates
because even if they jump drastically, there are limits on
how much your payments will increase.

These limits are called caps and mean that no matter the
size of the interest jump, you won't pay more than a
certain increase in a certain time period.

As an example, let's say a lender gives you an adjustable
rate mortgage. It has a 1 percent cap for any 6 month time
frame and a 4 percent total cap for the entire loan.

Your payments can increase as much as 4 percent at the
maximum until the loan is paid off. That's not too shabby
if you consider when interest drastically drops, you save a
ton of money.

Every area in the country has different interest rates so
you should read up on it before you opt to go with an
adjustable rate mortgage.

Local newspapers usually include interest rates and
predictions so that is a great place to go to keep an eye
on things.