An adjustable rate mortgage is a great option if you are looking for lowest mortgage rates in the initial years of the loan, but there is always a risk of rate hikes with them. A significant increase in the mortgage rates can lead to Payment Shock and this is quite common with the ARMs as the interest rate on them keeps fluctuating yearly. ARMs have an initial fixed rate period of up to 7 years and once this period gets over, the rate resets annually as per the condition of the market. It can move either up or down and if it moves up, the mortgage payments can skyrocket. But fear not. Here are some ways to cope with the payment shock of ARMs.
1. Know The Rate Caps: ARMs are always accompanied by an interest rate cap that limits their fluctuation. There are two types of rate caps. The first one limit how much the rate can increase from one year to the next and the second one limits the rate increase over the life of the loan. Before you take an adjustable rate mortgage, find out about the rate caps and in order to avoid payment shock, ask your lender to calculate the payments of worst case scenario. Thus, you’ll have an idea of what to expect.
2. Refinance: ARMs are most suitable for people who don’t plan to live in the same house for more than a few years and are planning to move out before their first rate adjustment. However, if you do plan to stick around for long then refinancing your ARM to a Fixed Rate Mortgage is the best way to avoid payment shock.
3. Loan Modification: If you are struggling to meet your mortgage payments due to rate hikes and have missed a couple of them, your lender may modify the terms of your loan. This might include switching to a fixed rate loan without refinancing or lowering your monthly payment to avoid foreclosure.
4. Get Rid of PMI: You can ask your lender to remove the Private Mortgage Insurance from your loan in order to cope with the unrealistically high payments.
However, ARMs are not all that bad. They offer lower initial rates than fixed rate mortgages and there is always a chance of interest rates going down rather than going up.
If you are feeling the burden of payment shock or have any further questions regarding ARMs, feel free to call All Western Mortgage at 702-850-2790 or just visit http://www.awmlending.com/loans-adjustable.php
1. Know The Rate Caps: ARMs are always accompanied by an interest rate cap that limits their fluctuation. There are two types of rate caps. The first one limit how much the rate can increase from one year to the next and the second one limits the rate increase over the life of the loan. Before you take an adjustable rate mortgage, find out about the rate caps and in order to avoid payment shock, ask your lender to calculate the payments of worst case scenario. Thus, you’ll have an idea of what to expect.
2. Refinance: ARMs are most suitable for people who don’t plan to live in the same house for more than a few years and are planning to move out before their first rate adjustment. However, if you do plan to stick around for long then refinancing your ARM to a Fixed Rate Mortgage is the best way to avoid payment shock.
3. Loan Modification: If you are struggling to meet your mortgage payments due to rate hikes and have missed a couple of them, your lender may modify the terms of your loan. This might include switching to a fixed rate loan without refinancing or lowering your monthly payment to avoid foreclosure.
4. Get Rid of PMI: You can ask your lender to remove the Private Mortgage Insurance from your loan in order to cope with the unrealistically high payments.
However, ARMs are not all that bad. They offer lower initial rates than fixed rate mortgages and there is always a chance of interest rates going down rather than going up.
If you are feeling the burden of payment shock or have any further questions regarding ARMs, feel free to call All Western Mortgage at 702-850-2790 or just visit http://www.awmlending.com/loans-adjustable.php
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