Adjustable Rate Mortgage Avoid
a Heinous Mortgage Mistake |
By Louie Latour |
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Adjustable Rate Mortgages tempt homeowners with low introductory
payments. If you're 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
don't 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. |
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