What are Adjustable Rate Mortgages?

If you're in the market for a new house, you've probably already been considering how you're going to pay for it. The majority of people in the United States finance their house through a mortgage and here at Kari Mortgage, we can help you by getting you approved for an adjustable rate mortgage today! However, you may be wondering what a mortgage is or more specifically, what an adjustable rate mortgage is, here's the basics:

In general, a mortgage loan is a loan secured by actual property, your new home in this case. This means if you take out a mortgage, you'll be expected to pay off any outstanding debt on the property before selling the property. The amount of money you borrow is referred to as the principal, which could also include certain other costs. Of course, every mortgage will come with an interest rate, a small percentage that is tacked on to your principal. This amount is based off how much large the principal is and how long it will take you to pay for it. In the case of an adjustable rate mortgage, your interest rate may change over time, depending on several different factors.

The main factors that will affect the interest rate on your adjustable rate mortgage are the index, margin, and the amount of money you paid on your down payment. Possibly the most important factor here is the index, a guide that lenders use to measure how much interest rates change. The margin is also significant because it represents the lender's cost of doing business and the profit they'll make on the loan, this rate will never change. Combine the index and margin to get the total interest rate for your mortgage. Your interest rate won't change randomly though, it can only change during certain periods of time, called adjustment periods. Adjustment periods vary in length; they could be annual or last for several years. The last factor that can affect your interest rate is how much money you place on your home up front, called the down payment. As you'd probably guess, larger down payments equal lower interest rates.

Since the index can go up and down during the course of your mortgage, you obviously run the risk of having your interest rate increase. Fortunately, this doesn't have to have a major effect on your monthly payments. You can negotiate several different interest rate caps that limit how high your rate can reach. All adjustable rate mortgages have an overall cap, these limit how high your interest rate can go over the entire life of the mortgage. Some mortgages may also offer a periodic cap, which limit how much the interest rate can increase from each adjustment period. If you don't have a periodic cap on your mortgage, you may have a payment cap instead to limit how much your monthly payment can increase. What does all this mean? It basically boils down to this, adjustable rate mortgages offer you the best chance at getting approved for the largest possible loan so that you're not just settling on a new home, you're moving in to the house you and your family dream of! Read our "Why an Adjustable Rate Mortgage with Kari" page do find how we can help you get approved today!