Pittsfield, MA -- (SBWIRE) -- 05/08/2013 -- Real-estate-yogi.com is here to share its knowledge about this topic, including:
- ARMs
- FRMs
- Adjustment Period & More
- Interest Rate & Payment Caps
Adjustable Rate Mortgages
Adjustable rate mortgage loans have interest rates that change as the mortgage indexes do. An index is a guide which financers utilize to tabulate interest rate changes. The indexes most often used by these lenders are based on the activity of 5, 3, & 1 year Treasury securities, but there are many other indexes available, and each index is attached to a specific ARM. ARMs are beneficial because they have lower interest rates which may translate into a lower payment and, perhaps, a larger loan.
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Fixed Rate Mortgages
A fixed rate mortgage is the opposite of an adjustable rate mortgage (ARM) in that its interest rate never changes for the life of the loan. Most FRMs have repayment periods of 30, 20, or 15 years, during which time the principal and interest put toward the payment varies as the mortgage matures. The benefits of a FRM are that the homeowner always knows how much his payment will be and that it offers a buffer against inflation. ARMS are susceptible to inflation because they fluctuate.
Clarifying Adjustment Period
While looking into Adjustable Mortgage Rates Today, be sure to figure in the adjustment period. An adjustment period for an ARM is simply the time between likely interest rate changes. When there are terms listed as 1-1, 3-1, or 5-1, the initial figure pertains to the opening period of the mortgage, during which the interest rate will not change. The second number defines how often the rate can be changed after the opening period has expired. The examples given indicate that these are adjusted yearly. While an ARM may seem somewhat risky because of its fluctuating, if one is only.
Interest Rate Caps
When a homeowner does a refinance on an adjustable rate mortgage, it is possible for him to switch to a fixed rate loan; however, the costs of doing so may be prohibitive. ARMs have two types of caps – periodic and overall. Periodic caps limit the amount the rate can change from one period to the next, and overall caps define how much the rate can increase during the life of the loan. FRMs don’t have caps because the rate doesn’t change.
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