An adjustable rate mortgage is a home loan with an interest rate that changes, periodically, during the life of the loan. Because they offer substantially lower initial interest rates, ARMs became very popular among borrowers looking to purchase larger, more expensive homes.
Of course, at the end of the initial period, the interest rate on an ARM may adjust upward – along with the monthly payment. Even though most adjustable rate mortgages have “caps,” or limits, on the amount the interest rate can increase at each adjustment period, many people still find themselves in a vulnerable position, unable to afford their new, higher payments.
If your adjustable rate mortgage is nearing its adjustment period, you should bear in mind that your current, initial rate has no bearing on what your rate may jump to. In fact, many ARM loans allow an immediate adjustment to the maximum cap rate – which can be as much as another 5 or 6 percent.
If, for instance, you have an initial rate of 4% on a $300,000 loan and your rate adjusts upward to 6.5%, you will end up paying nearly $500 more per month. If your rate adjusts to 9%, you would need to come up with almost $1,000 more every month to pay your mortgage.
This is not a scenario most of us can afford. Fortunately, there are solutions: American Equity Mortgage offers a number of fixed-rate loans that can get you out of your ARM and into the security of a stable, fixed rate – with payments that will not change over time.
These loans are available right now, and many of them are easier to obtain than you might think. If you have an ARM that is about to adjust – or has already done so – contact one of our Mortgage Consultants right away. Clearly, this is one instance where time truly is money. Call today, and let us find you a loan you really can afford.
