Remember when your mom told you that if it sounds too good to be true, it probably is? The same could be said about Adjustable Rate Mortgages (or ARM in industry lingo). These guys can be a wolf dressed in sheep’s clothing and if you aren’t careful they are going to huff and puff and take your home away!
An Adjustable Rate Mortgage works like this. Initially, you are probably going to be paying anywhere from 2 – 3 % below the current market interest rates on your mortage. For many people, this allows them to buy a bigger house, one that would normally be outside their price range. The normal reasoning is that by the time the loan adjusts – which could be a year from now, or as much as 7 – 10 years from now – they will be earning more, the economy will be better, etc.
The problem they run into is that as good as we hope the future is – sometimes it isn’t. Lives change, the economy fumbles or we change jobs. Suddenly, we went from two incomes to one or we just aren’t making as much as we were a few years back. Even worse, interest rates rise and when it comes time for our ARM to adjust it goes up –...
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