Questions You Should Ask About An ARM Mortgage Loan

Filed Under Adjustable Rate Mortgage | Leave a Comment

It is no secret that taking out a home mortgage is an important decision. There are two main types of home mortgage loans: a fixed rate home mortgage and an adjustable or ARM mortgage loan. When you have finally made up your mind to go for it, there are several questions you should ask your lender before signing any contract. For the sake of this article, we will be exploring adjustable mortgage rates.

Even though many choose to go with a fixed rate home mortgage loan because they will have locked into a fixed interest rate for the life of the loan, the interest rate will generally be higher than ARM mortgage loans will be. If the interest rate on a fixed mortgage is high, ask the lender if there is any historical data available to show if and when the rates could conceivably come down. If the answer is yes, you could then go with the current lower ARM mortgage rate and then choose to lock in a lower mortgage refinance rate when the ARM mortgage loan comes up for review.

Now ask your lender what the term of the principal interest rate for the ARM mortgage will be and how often will the loan come up for review? The average time for review for the ARM loan is usually one, three or five years. At this time, the interest rate will then be up for review based on several factors. Be sure you know what those factors are before making your final decision.

Another thing to consider is if you can financially afford an increase in the ARM mortgage interest rate, because this will raise your monthly payment. Ask your lender if you will be able to afford the capped increase in the interest rate should it rise to a higher amount when the interest rate is up for review.

You will also want to review the terms and conditions of the ARM mortgage loan. Be sure your lender is willing to go through all of the terms and conditions of the adjustable rate mortgage with you. Ensure that you understand all of the ins and outs of the mortgage before signing on the dotted line.