WILL AN ADJUSTABLE LOAN REALLY BENEFIT YOU? By David A. Chodack   Adjustable Rate or Variable Rate Mortgages (ARM's/VRM's) usually benefit three kinds of people, those who are starting out, those who don't expect to stay in the property too long and those who feel interest rates are currently high and don't want to be locked into a Fixed rate. There are even hybrid loans, which are fixed for the first one to 10 years and then switch to an Adjustable interest rate for the remainder of the loan. This is for people who don't really want an Adjustable or Variable interest rate, but don't really need a 30 year Fixed rate either.   Many ARM's, offer a low initial starting rate for qualifying. This allows people who are starting out, to qualify for larger loans. They usually expect their incomes to go up in the future, so even if their payments go up, they figure they will be able to handle the extra expense.   Many lenders also offer a low initial starting rate, called a Teaser Rate, on ARM's. This benefits people who don't plan to keep the property very long. Even if the interest rate does go up in the future, they will still save money today.   The interest rate on ARM's can also go down, so if interest rates are high, why lock in a fixed rate that can never change? By taking an ARM loan, you may be able to lower your payments in the future.   If you think that you fit into one of these categories, then an ARM may be for you. There are several questions to ask your lender or mortgage broker, to make sure that you make the right decision. 1) What is the Qualifying Rate? Is it the same as the Teaser Rate? If not, is it still lower than the qualifying rate for a Fixed Rate loan? How much more money can you borrow this way? 2) Assuming that interest rates stay the same, what will the interest rate on your ARM, be in six months? A year? Two years from now? What can cause it to go up, or down? 3) What Index will your loan be based on and how stable is it? Ask to see figures for the last five years. 4) What is the Margin, over and above the Index? (This will generally vary by anywhere from One to Three percent; the higher the Margin, the lower the initial interest rate should be and vice versa.) In other words, if you want really low payments now, you may have to pay more in the future. This may well be worth it to you. Find out how it affects your chances of qualifying.  5) How much can your interest rate go up in any one year? Over the life of the loan? What is the likelihood of this happening? Ask to see figures for the last five years. 6) If it's a hybrid loan, does it automatically switch to an Adjustable, or Variable Rate loan at the end of the Fixed Rate period? Or, do you have to apply, and/or qualify, in order to make the switch and extend the loan period beyond the Fixed Rate period? 7) Is the loan fee (the "Points") the same, or less than it would be for a Fixed Rate loan?   You need all the facts before you can really decide. When you have answers to these five questions, you can then begin to make an educated comparison. That's when you can decide whether a Fixed Rate, an Adjustable Rate, or a hybrid loan would really be best for you. You can make your choice based on facts and figures, not emotions or salesman's hype. If your loan agent can't, or won't answer these questions, then you are dealing with the wrong person. Find someone who can and will answer all your questions truthfully and knowledgeably. That way, you'll get the information you need to choose the right loan for you. It's as simple as that. BACK TO CREDIT AND MORTGAGE ARTICLES PAGE CONTRACT WIZARD HOME PAGE TAX SALE RICHES HOME PAGE MORTGAGE MAGIC HOME PAGE