Important Consumer Handbook on Adjustable-Rate Mortgages

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Important Consumer Handbook on Adjustable-Rate Mortgages

2/4/2007, 11:04 am

During the last few years interest rates have been low. Yet at the same time, a large number of home buyers have used adjustable rate mortgages to buy homes. Instead of locking in a fixed rate mortgage (FRM) for 5.5% to 6% for 30 years and knowing exactly what one’s payment will be for the entire term of the mortgage loan, home buyers have jumped on the teaser rates of as little as 1% offered on adjustable-rate mortgages (ARMs).

Unfortunately for those who jumped on the ARM bandwagon, interest rates are already low and are generally expected to adjust upward in the future. You see the ads for ARMs on TV like, “borrow $500,000 for only $1,600 per month!” The fine print scrolls so quickly and is so fine you don’t have a chance to read that in a year or two that $1,600 per month can jump to as much as $3,000 per month or more as the adjustable interest rate adjusts.

Before you sign for an adjustable-rate mortgage you MUST know the details. And one of the best places to get a healthy introduction to adjustable rate mortgages is the Federal Reserve Board’s website. The FRB’s “Consumer Handbook on Adjustable-Rate Mortgages” starts by explaining, “your monthly payments could change”, “your payments may not go down much, or at all”, “you could end up owning more money than you borrowed”, and “if you want to pay off your ARM early to avoid higher payments, you might have to pay a penalty.”

You can read the “Consumer Handbook on Adjustable Rate Mortgages” online or download a PDF version which you can print and read as you wish away from your computer.

If you or someone you know is considering an ARM, point them to the Consumer Handbook on Adjustable Rate Mortgages.

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