Adjustable-rate loans vary, but they all share one common factor, the interest rate can be changed by the lender. If you are considering applying for any type of adjustable-rate loan, make sure you understand exactly how the mortgage works including how often the loan can be adjusted; the maximum allowable increase (or decrease) each year as well as over the life of the loan.
An adjustable rate home mortgage loan must be carefully reviewed prior to accepting any mortgage program. Contact a Real Estate Lawyer for an adjustable rate home mortgage loan evaluation.
Adjustable-rate loans include:
- Adjustable-rate mortgages these loans typically offer a lower interest rate than fixed-rate loans to begin, and often come with a "teaser" rate, a lower-than-market interest rate in the first year.
- Convertible ARM’s. These loans usually offer a conversion factor that allows the borrower to convert to a fixed-rate loan at a specified period of time. For example, a convertible ARM could allow the borrower the option to convert to a fixed-rate loan once a year over the first five years of the loan.
- Renegotiable-rate mortgage (rollover). These loans typically set the interest rate and monthly payments for several years, sometimes as if the loan were being amortized over a much longer period, and then allow both the rate and principal payments to be changed depending on general market conditions.
- Graduated payment mortgage (GPM).With this type of loan, typically sought by young buyers who expect their incomes to rise, the payments are low in the first couple of years and gradually set to rise for five the years thereafter.
- Shared-appreciation mortgage. These loans offer lower-than-market rates of interest and low payments in exchange for a lender’s share in appreciation of the property. Usually, the lender will require that its share of equity will be turned over when the home is sold or at a specified date set out in the loan agreement.
You should always seek the advice of a professional before committing yourself to any type of financial obligation. Although the adjustable rate mortgage may carry a lower start rate, make sure that you are prepared the increase that is sure to occur in the future.
An adjustable rate home mortgage loan must be carefully reviewed prior to accepting any mortgage program. Contact a Real Estate Lawyer for an adjustable rate home mortgage loan evaluation.
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