About Adjustable Rate Mortgage - ARM - Questions You Should Ask
One very important decision in home ownership is choosing the right type mortgage. This means you should be asking the right questions of your lender before committing yourself. So, exactly which questions should you be asking?
First, ask the lender what the current prime interest rate is. By asking this question, you will be able to recognize the trends by researching the past years’ prime interest rates. This will also help you determine if a fixed rate mortgage or an adjustable rate mortgage (ARM) is best for your situation.
You should also ask the lender what current interest rate they are offering on a fixed rate mortgage and what the payments may be. Their answers will help you determine if this is your best choice. While the interest rate of a fixed rate mortgage will be higher than an adjustable rate mortgage, it will remain the same for the entire life of that particular loan.
Ask the lender what the current interest rate is on an adjustable rate mortgage. Remember, this is lower than the fixed rate mortgage, but changes regularly.
You should also ask what the adjustable rate mortgage term is on the principal interest rate and when would reviews begin. The terms on principal interest rates are generally from one to five years. This will allow you to determine how much time is left on current rate and when it will be reviewed and changed. Generally, the rate is reviewed between one to three years after the initial start of the loan.
Ask if you would be able to afford the increases that will occur with an adjustable rate mortgage. You should also make sure you would be able to handle the capped increase if it were to increase that much when the review occurs.
Ask if you can read the conditions and terms of the adjustable rate mortgage. Make sure the lender explains all of these aspects to you as well. Make sure you have a full understanding of how the mortgage will work prior to signing your name.
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