Most buyers know that first-year interest on
Adjustable Rate Mortgages (ARMs) is lower than on available fixed-rate
mortgages. This makes ARMs easier to qualify for, but they require that
borrowers have some understanding about how such loans work because there are
significant details associated with the low first-year rate.
First, check to see how long the low rates offered on the ARMs are
guaranteed. After that period of time, the rates can go up two points a year to
a typical "cap" of six points over the life of the loan.
Lenders will usually require borrowers to qualify for a mortgage loan
that is several percentage points above the actual initial rate charged on the
ARM. This is intended to keep borrowers from becoming overburdened by debt.Some
lenders may charge special fees or caps which can increase the cost of the loan.
If you think that an ARM may work for you, it is a good idea to shop around.