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When Are Adjustable Rate Mortgages A Good Idea
(presented by www.refinance-refinance.net - mortgage lenders)



By Ben Afzal

Basics

At its most basic an adjustable rate mortgage is a loan where the interest rate may adjust sometime during its lifetime.

For example, a 2/28 mortgage is a mortgage where:

  • the interest rate is fixed for the first 2 years
  • the interest rate is adjustable for the next 28 years
  • the loan has a term of 30 years in total

An interest rate can become adjustable at any time, depending on what the loan is:

  • after the first month of the loan
  • after 6 months
  • 1 year
  • 2 years
  • 3 years
  • 5 years
  • 10 years
  • other schedule

Lenders usually charge less for an adjustable rate loan than for a fixed loan. For example, a loan that is fixed for only 2 years will likely have a lower interest rate than a loan that is fixed for 30 years. A lower interest rate means a lower monthly payment. Many borrowers in recent years decided to get adjustable rate mortgages when interest rates were low. Now that interest rates are trending higher many of these borrowers are facing the prospect of a much higher interest rate and payment when their rate adjusts.

If you are planning to live in a property for only 2-3 years you may be protected from interest rate change by getting a mortgage that is fixed for 10 years.

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HOME LOANS ADVERTISEMENT

Many borrowers get a 30 year fixed mortgage. Most people, however, don’t keep the same property and loan for 30 years. When they sell a property or refinance they will need to get a new mortgage at whatever prevailing rates are at the time.

There are many free mortgage calculators available online to help you figure this out.

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This entry was posted on Thursday, October 12th, 2006 at 2:19 am and is filed under Refinance. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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