Mortgage Types Adjustable Rate Mortgages

Compared to fixed rate mortgages, Adjustable Rate Mortgages (ARMs) offer a lower interest rate to start, so your monthly payments are generally lower. But, the interest rate is adjusted at times, based on an "index". Some of the more common indices include United States Treasury Bills, California's 11th District Cost of Funds and the London Interbank Offered Rate (LIBOR). Every lender then adds a set margin to that index. The result - Your payments could go up or down, depending on the economy and its resulting indicators.

The index used, the margin added, and how often your rate is adjusted (usually every 1, 3, 5 or 7 years) can be different from lender to lender. Be sure to ask what they are.

Look for ARMs with interest rate "caps". These limit how much your rate can go up or down each time it is adjusted, and how much it can go up or down over the life of the loan.

Consider an Adjustable Rate Mortgage if you:

• Want or need more home than you can qualify for now at a fixed rate.
• Are confident your income will increase.
• Plan on moving within seven years of buying your home.