| An adjustable rate mortgage is a mortgage loan that is | | | | Arm with a 2/9 cap and an initial rate of 5% would |
| fixed for a set period of time and then adjusts based | | | | stay fixed at 5% for five years. At the five year mark |
| on the rates during the adjustment period. Some | | | | the rate could adjust a maximum of 2% to 7%, after |
| common adjustable rate mortgage loans terms are 1/1, | | | | another year it could adjust 2% to 9% and after the |
| 3/1, 5/1, 7/1, and 10/1. The first number in what appears | | | | next year could adjust to 11%. 11% would be the |
| to be a fraction is the amount of time the rate stays | | | | lifetime cap and therefore the adjustable rate |
| fixed. The second number is the amount of time | | | | mortgage could not increase any more. If the rates go |
| between adjustments. For example a 5/1 Adjustable | | | | down however, the rate could adjust lower after any |
| rate mortgage would stay fixed for 5 years and then | | | | given year. |
| adjust annually. | | | | There is however a floor rate which is the minimum |
| An adjustable rate mortgage generally offers a lower | | | | rate the loan could ever achieve. In other words if the |
| rate than a fixed rate loan initially; however, it could | | | | loan started at 5% and the floor rate was 4% the |
| adjust to a higher rate than the initial fixed rate | | | | interest rate would never drop below 4%. |
| mortgage would have been. An Adjustable rate | | | | The difference between a fixed rate and adjustable |
| mortgage, also called an ARM, is very good for a | | | | rate mortgage is the fact that a fixed rate loan may |
| person that knows specifically how long they will be | | | | start at 6.5% instead of 5% so for the first 5 years |
| living at a specific residence. In other words, a person | | | | one would be receiving an interest rate 1.5% below |
| who knows for a fact that they will be moving in four | | | | that of a fixed. |
| years would benefit from a 5/1 ARM because they | | | | Jason Bertrand is the President of JPB Financial |
| would be moving out of that home and mortgage prior | | | | Services, Inc., a Connecticut Corporation and member |
| to the first adjustment period. | | | | of the Better Business Bureau. He has over a decade |
| Adjustable rate mortgage loans also have an | | | | of experience in the financial services industry and is a |
| adjustment cap and a lifetime cap. For example a 5/1 | | | | Notary Public in the State of Connecticut. Please visit |
| arm could have an adjustment cap of 2% and a | | | | the following sites: |
| lifetime cap of 6%. So in a worst case scenario, a 5/1 | | | | Feel free to contact Mr. |