They are worth taking
a look at.
Here is a
brief list of some of the options you may want to add to your loan.
An interest-rate or payment cap places a limit
on the amount your interest rate or monthly payment can increase. Obviously, anything
that provides protection against interest rate hikes is a very good idea, so pay
close attention to the cap. Although we've listed it here as an option, a cap
is really a must. Avoid any ARM that does NOT have a Cap.
come in three versions:
1 - Periodic caps, which limit the
interest-rate increase from one adjustment period to the next;
- Overall caps, which limit the interest-rate increase over the life of the loan,
3 - Monthly payment caps, which limit the total amount
your monthly payment can increase from one adjustment period to the next.
You can limit your risk by choosing a longer
term ARM, such as a 5/1 or 7/1, where the interest rate is fixed for five or seven
years. The tradeoff is you'll probably pay a slightly higher rate than a typical
ARM in exchange for that sense of security.
These loans offer a lower rate during a set initial period, after which the rate
"balloons" to a higher level. A balloon loan is only a good idea if you're absolutely
sure you'll be selling your home or refinancing before the loan matures.
Take a good look.
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