Florida Adjustable Rate Mortgages
Adjustable-rate loans vary, but they all share one common factor -- some aspect of the terms of the loan can be changed by the lender during of payment, or length of time for repayment. If you are considering applying for any type of adjustable-rate loan, make sure you understand exactly how the mortgage works, including the spread between the interest rate and the index to which the rate is tied; how often the loan can be adjusted; the maximum allowable increase (or decrease) each year as well as over the life of the loan.
Types of Mortgage Loan issues include the following:
- Adjustable-rate
- Convertible ARM’s.
- Renegotiable-rate mortgage (rollover).
- Graduated payment mortgage (GPM).
- Shared-appreciation mortgage.
Adjustable-rate loans include:
Adjustable-rate mortgages (the life of the loan. The specific type of adjustable mortgage is tied to whether the change is in the rate of interest, amount ARMs). These loans typically offer a lower interest rate than fixed-rate loans to begin, and often come with a "teaser" rate--a lower-than-market interest rate in the first year. The future interest rate, after the initial period, will usually be adjusted annually and is tied to an index that may move up or down but is not under the control of the lender. The index might be the one-year Treasury bill (the "T-bill" rate) or some other rate that reflects the changes in interest rates. Note that the rate is tied to the index -- it is not the same as the index. The mortgage might specify, for example, that the future rate would be two points above the average T-bill rate.
Typically, ARM’s are adjusted once a year on the anniversary date of the loan. Additionally, ARM’s usually have a provision for a cap, that is, the highest rate that could be charged. Some may include a minimum rate as well. When considering ARMs, consumers should never take one without a cap, and should insist on an example of what the highest possible payment would be under a particular ARM.
