<< Types of Loans

An adjustable rate mortgage or ARM, as it is often abbreviated, is any type of loan where the interest rate can fluctuate. This rate is based on one of 6 different indexes in the United States. The reason for the change in interest rates is so the lender receives their proper margin because the index also relates to their cost of funding that loan. Essentially, this means that the lender transfers a small portion of the interest risk to the person or corporation that's borrowing money from them. This can be very beneficial for someone with a home loan if the interest rate falls for long periods at a time.

Don't worry though, even if interest rates happen to skyrocket, there are limitations on charges always in place. Often known as caps, limitations on charges basically means that no matter what happens, if there is a significant increase in interest rates, you won't pay more than a set amount over time. An example is the lender may have a 1% cap for a 6 month period and a 5% cap over the entire length of the loan. This is in place so that the borrower doesn't end up getting stuck trying to pay more than they may be able to.

The adjustable rate home mortgage is very popular because it lets people pay lower monthly payments in return for taking on some of this risk. Home mortgage payments can be expensive and the adjustable rate home mortgage is great for those that just don't want to pay a higher but fixed rate loan each month.

Interest rates vary by area and depending on where you live or would like to live, an adjustable rate home mortgage might be just what you are looking for. Local newspapers are usually amazing places to get real estate and interest information about the area you are interested in. They always list the interest rates along with predictions and stories that relate to possible increases or decreases in rates.

The very best resource for someone considering an adjustable rate home mortgage is to consult a professional real estate agent or team. They can answer all of your questions in detail and provide many different examples that you can use to help you decide the best course of action. They might also be the best resource for prediction what may happen in the real estate market and what the future may hold for interest rates in your area.

Team Aguilar Offers Real Estate Services in San Diego and California