Adjustable Rate Mortgages - Talking About Interest Rate Caps - part 2

by Dan Lewis

A lifetime rate cap is just what it says. This cap sets the maximum interest rate the lender can charge you for the loan. You must always demand a lifetime cap on any mortgage you take out. Assume you take out an adjustable rate mortgage with an interest rate of four percent. As part of the agreement, the loan has a lifetime cap of eight percent. If interest rates shoot up to 10 percent, your loan will cap out at nine percent. While this is a high interest rate, it is a lot better than paying 10 percent.

Periodic rate caps also protect you, but in a different way. A periodic rate cap defined the maximum percentage your interest rate can increase over a period of time. The shorter the time period, the better the cap. If your loan document allows the lender to adjust the rate every six months, the cap may be as low as one percent. This means the lender can only increase the interest rate by a maximum of one percent, regardless of what the market is charging for new loans.

Adjustable rate mortgages are great when interest rates are low. When rates start creeping up, however, you need to take a close look at your caps.

Copyright (c) Dan Lewis

---

Related Adjustable Rate Mortgage Articles: Adjustable Rate Mortgage - How They Work? The borrowers adjustable interest rate mortgage is determined initially by the cost of money and the time the loan is made. Adjustable Rate Mortgages - Interest Rate Strategy Over the last few years, many people squeezed into new homes using adjustable rate mortgages. With interest rates going up, you now need a new interest rate strategy. Achtung ! Stay Away From Adjustable Rate Mortgages ... Adjustable rate mortgages may offer low rates, but they may not be the best option right now. Here's why ... ARM - Adjustable Rate Mortgages Traditionally, homebuyers could look to two forms of mortgages - fixed rate and adjustable mortgages. While there are now many more options, this article takes a look at the adjustable rate mortgage. What Is An Adjustable Rate Mortgage Or ARM? This article is a short explanation of what an adjustable rate mortgage is. Our goal is to help a buyer understand different types of products during their home purchase or refinance experience.

Related Adjustable Rate Mortgage News:

Back from Adjustable Rate Mortgage Articles
to California Morgage Articles Directory