When you are shopping for an Adjustable Rate Mortgage,
the important thing to consider is the margin. Each time your loan is adjusted,
the new interest rate will be tied to an index of Treasury notes. The margin is
the percentage point above that index where your rate will be set.
Let's suppose that you have a one-year ARM with a 2.5 margin. Your
initial rate was 7.5%, and during the first year of the loan, the index of
1-year Treasury notes was at 6.25%. The rate for the second year of your loan
would be adjusted to 8.75%. With a margin of 2.75, it would increase to 9%. Some
lenders offer lower initial rates with higher margins. In this case, the
subsequent rates could be higher after the first year, than if you chose a
higher initial rate with a lower margin. If you are confused by the various
mortgage offers, ask a professional mortgage broker to sit down with you and
show you how it works. Today the rates and different financial possibilities
change so frequently that it is a good idea to talk to a mortgage broker--they
usually know where the best rates can be found.