What is an ARM Loan?

An adjustable rate mortgage ["ARM"] is a basic mortgage with one important exception. With an ARM, your interest rate will start low but typically move up throughout the link of the loan. The timing of the movements is dictated by the terms of the loan. The rate may be adjusted every month, but more typical periods are every six or twelve months. Most adjustable rate mortgages also have a cap on the amount the interest rate can be raised in a particular period.

"ARM" Yourself?

A homebuyer has to be very careful when selecting an adjustable rate mortgage. Buying a home necessarily involves budgeting out how much of a monthly mortgage rate you can afford to pay. With an ARM, you have to keep in mind that your monthly payment amount will go up if the interest rate does the same. While you may be able to afford the loan now, what happens if the rate jumps two percent over the next two years?

In the current real estate market, potential rate increases

If you are considering an adjustable rate mortgage, make sure you do the research. Find out how often the rates can increase and by how much. Try to determine whether you can afford payments if the rates go up significantly over the next few years. With Greenspan retiring, now is the time to be very careful when taking on mortgage debt.
About the Author

Dan Lewis is a mortgage broker with http://www.gwhomeloans.com - San Diego mortgage brokers providing home loans and refinances. Visit http://gwhomeloans.com/services.html to learn more about options for San Diego mortgages.