Consumer Handbook on Adjustable Rate Mortgages

CONSUMER HANDBOOK ON ADJUSTABLE RATE MORTGAGES ES

We believe a fully informed consumer is in the best position to n to make a sound economic choice. If you are buying a home, and looking for a home loan, this booklet will provide useful basic information about ARMs. It cannot provide all the answers you will need, but we believe it is a good starting point. PEOPLE ARE ASKING

"Some newspaper ads for home loans show surprisingly low rates. Are these loans for real, or is there a catch?"

Some of the ads you see are for adjustable rate mortgages gages (ARMs). These loans may have low rates for a short time--maybe only for the first year. After that, the rates can be adjusted on a regular basis. This means that the interest rate and the amount of the monthly payment can go up or down. "Will I know in advance how much my payment may go up?"

With an adjustable-rate mortgage, your future monthly payment yment is uncertain. Some types of ARMs put a ceiling on your payment increase or rate increase from one period to the next. Virtually all must put a ceiling on interest-rate increases over the life of the loan. "Is an ARM the right type of loan for me?"

That depends on your financial situation and the terms of the f the ARM. ARMs carry risks in periods of rising interest rates, but can be cheaper over a longer term if interest rates decline. You will be able to answer the question better once you understand more about adjustable-rate mortgages. This booklet should help. Mortgages have changed, and so have the questions that need to d to be asked and answered. Shopping for a mortgage used to be a relatively simple process. ess. Most home mortgage loans had interest rates that did not change over the life of the loan. Choosing among these fixed-rate mortgage loans meant comparing interest rates, monthly payments, fees, prepayment penalties, and due-on-sale clauses. Today, many loans have interest rates (and monthly payments) nts) that can change from time to time. To compare one ARM with anothe or with a fixed-rate mortgage, you need to know about indexes, margins, discounts, caps, negative amortization, and convertibility. You need to consider the maximum amount your monthly payment could increase. Most important, you need to compare what might happen to your mortgage costs with your future ability to pay.