Things to Know About Your Adjustable Rate Mortgage

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What does an ‘adjustment’ mean in an adjustable rate mortgage?

Things to Know About Your Adjustable Rate Mortgage

Too many people get themselves into situations that they do not fully understand. Sometimes, this can be a huge detriment. For many homeowners, the adjustable rate mortgage that they signed when they bought their home was not explained well enough. These people soon find that they are facing a change in their payments that they never expected. If you have or are looking to obtain an adjustable rate mortgage, here are a few of the important things to know.

First, when will your loan adjust? The adjustment periods vary greatly with adjustable rate mortgages. They can be as short as 1 month or as drawn out as 7 years. Many people sign an adjustable rate mortgage with an ‘introductory rate' that is extremely low. Most of the time, this rate is so low because in a month or six month's time, you will be paying the adjusted rate which can be several points higher than the ‘introductory rate' that convinced you to get the loan. Be sure to know the first adjustment of the loan.

An adjustable rate mortgage does not adjust just that once. There will be periodic adjustments after the initial adjustment takes place. Future changes to your rate will be determined by either the US Treasury or the LIBOR Index. Know which will determine your rate adjustments so you can follow each on your own. Get well acquainted with when and how often your mortgage rate will adjust after the initial adjustment. Don't get caught by surprise. Getting an adjustable rate mortgage is a great way to start off as a homeowner… if you know what you are getting into. Be sure to know your rate adjustments and either refinance or sell as necessary to not get stuck with what could be very high rates in the future.



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