Adjustable Rate Loans

An adjustable –rate mortgage differs from a fixed-rate mortgage in many ways. Most importantly, with a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an ARM, the interest rate changes periodically, usually in relation to an index, and monthly payments may go up or down accordingly.

Lenders usually charge lower initial interest rates for ARMs than for fixed-rate mortgages. At first, this makes the ARM easier on your pocketbook than would be a fixed-rate mortgage for the same period of time. Moreover, your ARM could be less expensive over a long period than a fixed-rate mortgage — for example, if interest rates remain steady or move lower.

Against these advantages, you have to weigh the risk that an increase in interest rates would lead to higher monthly payments in the future. It’s a trade-off – - you get a lower initial rate with and ARM in exchange for assuming more risk over the long run.

Here are some questions you need to consider:

• Is my income enough — or likely to rise enough — to cover higher mortgage payments if interest rates go up?
• Will I be taking on other sizeable debts, such as a loan for a car or school tuition, in the near future?
• How long do I plan to own this home?
• Do I plan to make additional payments or pay the loan off early?

ARM Programs provided by 1st Portfolio include:

• 3, 5, 7, and 10 year Arms
• Interest only and amortizing
• 40 year amortization available