By James Calvin
People are asking if home loans in newspaper ads showing
astonishingly low rates are for real. These ads are what we
call adjustable-rate mortgage payments.
Loans with an adjustable-rate mortgage payment type usually
have low rates only for a short time. Rates of adjustable-rate
mortgage payment are adjusted on a regular basis, usually
the first year is over. This means that the interest rate and
the amount of the monthly adjustable-rate mortgage payment may
vary, going either up or down.
With adjustable-rate mortgage payments, there is little chance
of you knowing what your future monthly payment would be. Some
types of adjustable-rate mortgage payments have limits to the
interest-rate increase. When an adjustable-rate mortgage
reaches a certain percentage, the interest rate will no longer
increase for the duration of that period. But at the end of
that period, the adjustable-rate mortgage payment will vary
Determining whether or not an adjustable-rate mortgage payment
is the right type of loan for you usually depends on your
financial situation. Also, it depends on the type of
adjustable-rate mortgage payment you plan to make.
Adjustable-rate mortgage payments have characteristics that
might ultimately prove risky in the long run. Because the
dynamics of interest rates in the market are never certain,
amount of your adjustable-rate mortgage payments are uncertain
Adjustable-rate mortgage payments generally have lower initial
interest rates compared to fixed-rate mortgages. This makes an
adjustable-rate mortgage payment more affordable and easier on
the pocket. Adjustable-rate mortgage payments may also help
qualify for a larger loan. This is due to the fact that
sometimes decide to extend a loan provided that your current
income is steady and your adjustable-rate mortgage payments
the first year are up-to-date.
Another advantage of having an adjustable-rate mortgage
type of loan is that it could turn out to be less expensive in
the long run. With an adjustable-rate mortgage payment, the
chance of interest rates going higher is equal to its chance
going lower. Now here in also lies the risk of having an
adjustable mortgage payment.
When it comes to having an adjustable mortgage payment, there
are no guarantees. It is either the interest rates will lower
down or it will rise up. Lower interest rates mean lower
monthly adjustable-rate mortgage payments. Higher interest
rates mean higher monthly adjustable-rate mortgage payments
you. There is no middle ground. Adjustable-rate mortgage
payments are basically a trade-off – you exchange more risk
lower rate with an adjustable-rate mortgage payment.
But despite this, there are some ways to circumvent the risks
and increase your chances of landing a good investment in an
adjustable-rate mortgage payment. Below are some questions you
need to consider:
• Is there a possibility that my income will rise up enough to
cover higher adjustable-rate mortgage payments should interest
rates go up?
• Is there a chance that I might take on other sizable debts
like a loan for a car or school tuition in the near future?
• Will my adjustable-rate mortgage payments increase even
though interest rates remain the same?
• How long do I plan to own this home? (If you plan on selling
soon, an increase in interest rates should not be a problem
your adjustable-rate mortgage payment.)
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