Adjustable Rate Mortgage(ARM)


A mortgage where the interest rate is not fixed for the life of the loan. These mortgages adjust periodically based on an index that changes with market conditions. The rate of interest is the sum of the index plus a margin (the margin remains fixed for the life of the loan). Most ARMs have periodic interest rate and payment caps, as well as a life cap. ARM's may also be referred to as AML's or VRM's.

Adjustable Rate Mortgage Teaser Rates: How to Avoid Contract Shock


Many homeowners who take out Adjustable Rate Mortgages experience payment shock when their teaser rate runs out. This is because many borrowers don't understand the difference between the teaser rate and the contract rate of their Adjustable Rate Mortgages. Here are several tips to help you avoid contract shock when refinancing with an Adjustable Rate Mortgage.

Mortgage lenders lure homeowners to their products with teaser rates and frequently do not explain that their actual contract rate is buried in the loan paperwork. The larger the difference between the teaser and the contract rate, the greater the chances of contract shock for the unsuspecting homeowner. Here's an example of how a teaser rate can land you in hot water.

Suppose you refinance your mortgage with an Adjustable Rate Mortgage at 2.95%. This is an amazing deal that should be setting of warning bells; however, this teaser is only valid for 12 months. At the end of the 12 month period the teaser will change to the contract rate. The lender will then adjust the contract rate to the index plus margin. The margin is your lender's markup to boost their profits. This results in a contract payment amount that is hundreds of dollars higher than the teaser amount.

Payment shock with Adjustable Rate Mortgages only occurs when homeowners don't pay attention to the details of their loans. When used properly, and adjustable rate mortgage with a teaser rate can save you thousands of dollars in mortgage finance charges. You can learn more about refinancing your home using an Adjustable Rate Mortgage with a free mortgage tutorial.

To get your FREE six-part Mortgage Refinancing Tutorial, visit RefiAdvisor.com using the link below. Louie Latour specializes in showing homeowners how to avoid costly mortgage mistakes and predatory lenders. To get your hands on this free video tutorial: "Mortgage Refinancing - What You Need to Know," which teaches strategies for finding the best mortgage and saving thousands of dollars in the process, visit Refiadvisor.com.

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