Mortgages

Low Rate Mortgages - How To Avoid The Pitfalls

Low Rate Mortgages - 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 (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 is uncertain. Some types of adjustable rate mortgages 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 adjustable rate mortgage.

Adjustable rate mortgages 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.

The booklet listed below should help. Mortgages have changed, and so have the questions that consumers need to ask and have answered.

Shopping for a mortgage used to be a relatively simple process. 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) that can change from time to time. To compare one adjustable rate mortgage with another 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.

This booklet explains how adjustable rate mortgages work and some of the risks and advantages to borrowers that adjustable rate mortgages introduce. It discusses features that can help reduce the risks and gives some pointers about advertising and other ways you can get information from lenders.

Important adjustable rate mortgages terms are defined in a glossary. And a checklist at the end of the booklet should help you ask lenders the right questions and figure out whether an adjustable rate mortgage is right for you. Asking lenders to fill out the checklist is a good way to get the information you need to compare mortgages.

For the full information booklet go to:
The Federal Citizen Information Center