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Buying a House

Understanding ARM Loans

Top Three Types of Adjustable Rate Mortgage Loan Products

First Payment Adjustment

Bear in mind that your initial rate has little to do with rate increases; it's simply a start rate. It's not tied to an index. It's the index plus margin that equals your new payment upon adjustment. When your first adjustment rolls around, many loans allow a higher increase than for subsequent adjustments. Some can jump to the maximum cap rate, which could be as much as another 5 to 6 percent.

Let's say you borrowed $300,000 at an initial rate of 4% and pay $1,432.25 per month for principal and interest. If your rate moved to 6.5%, your payment would increase to $1,896.20, or about $464 more a month. If your rate moved to 9%, your payment would be $2,413.86, or a difference of an additional $982 a month. Short of taking on a second or third job, few borrowers can afford such drastic jumps in monthly payments. So what can you do?

Available Options

Foreclosure, of course, is always an option, but it's not the most desirable. Especially when there are better alternatives available. The worst thing a home owner can do is nothing

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