APPROACH ADJUSTABLE RATE MORTGAGES WITH CAUTION
Interest rates on fixed-rate mortgages remain historically low. The interest rate on some Adjustable Rate Mortgages (ARMs) is also relatively low, but choose an ARM with caution.
Keep in mind that the guaranteed low rate offered on ARMs usually applies only for the first few years. This may be an advantage for buyers who plan to keep a home for only two or three years. The lower monthly payments offered by an Adjustable Rate Mortgage make it possible for such buyers to purchase a more expensive home than they would otherwise be able to afford with a fixed-rate loan. But longer term, the buyer assumes much higher risk. Lenders factor in this risk. For example, some lenders may require marginal borrowers to qualify for a loan that is several percentage points above the initial rate of the ARM, or the lenders may charge special fees or “caps” that increase the cost of the loan. If you are shopping for an adjustable rate mortgage (ARM), you can get a measure of protection against rate increases by ensuring that your contract includes a limit on your future liability. Some ARMs put a cap on the payment, so that it will rise no higher than the maximum rate permitted by your contract. Dave Wallace is the President of Alliance Realty, Inc. in Ventura. He can be reached at (805) 644-1111 or email davewallace@start-packing.com. http://alliancerealtypros.com/index.htm