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