Adjustable Rate Mortgages tempt homeowners with low introductory payments. If youre not careful this adjustable interest rate could turn into an ugly nightmare. Here is what you need to know about Adjustable Rate Mortgages. Mortgage lenders often advertise adjustable rate mortgages with a discount interest rate. If you see a mortgage with an unreasonable low interest rate such as 3%, this lender is advertising a discount rate. This interest rate is only discounted for the introductory period of the loan; after the introductory period is up the loan will adjust to the actual interest rate. Chances are this interest rate will be much higher than a traditional mortgage. When interest rates are falling adjustable rate mortgages are an excellent opportunity to save money. The problem comes when interest rates are rising; not many people can accurately predict which way interest rates are going. The problem with adjustable rate mortgages is that when the mortgage lender adjusts the interest rate the monthly payment can go up significantly. Your 5% adjustable rate mortgage can easily jump to 9% in as little as four years. The first adjustment can hit your pocketbook particularly hard because the introductory interest rate is so low compared to the actual interest rate. Even if your adjustable rate mortgage includes caps you could still see the interest rate and the monthly payment rise significantly. If you dont have the stomach for a mortgage tied to a roller-coaster economy, your best bet is singing up for a traditional, fixed interest rate mortgage. |
