Knowing Rate Caps Help Homeowners Handle Adjustable Rate Mortgages in 2007

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A new article on GuideToLenders.com, an online consumer resource for broker and lender information, highlights the importance of assessing the rate caps of adjustable rate mortgages (ARMs). As interest rates rise, so will mortgage payments, and assessing the rate caps of ARMs will help homeowners establish a financial plan and protect their investment in 2007.

As homeowners head into a new year, some may need to reassess their financial situation and consider mortgage refinancing. In a new article on GuideToLenders.com, "Is Your ARM Broken? Refinancing Adjustable Rate Mortgages in 2007," columnist Gina Pogol provides an insider view into adjustable rate mortgages and how to manage potentially higher interest rates by assessing a loan's rate, terms and interest rate cap (http://www.guidetolenders.com/calculators/article-armbroken.jsp). GuideToLenders.com offers current and future homeowners a variety of tools for understanding home loans, interest rates and financial planning.

According to the Federal Reserve Board, "ARM payments can change quite a bit over the life of the loan." Homeowners risk facing "much higher payments in the future" if rate caps are not assessed.

With nearly $1 trillion in ARMs resetting from their low introductory rates in 2007, the article recommends that homeowners with adjustable rate mortgages examine their loan documents and determine where their rates will go in 2007.

The interest rate on an ARM is determined by the index it is tied to plus the profit margin that the lender includes. Borrowers with ARMs may pay several rates over the life of the loan:

  •     The initial or start rate (sometimes called a "teaser")
  •     The adjusted, or indexed rate (the index plus margin)
  •     The capped rate (loans typically include a cap limiting how high they can go in a single adjustment, and a lifetime cap that prevents a rate from exceeding a certain percentage regardless of the financial markets)

The article on GuideToLenders.com advises homeowners to assess their current loan and determine if they should refinance to a fixed rate mortgage, a hybrid ARM fixed for three to 10 years or sit tight and change nothing (http://www.guidetolenders.com/calculators/article-armbroken.jsp). Considerations include the length of time the borrower plans to own the property, whether other bills with high interest rates could be consolidated and paid, the rate and terms of the existing loan and the inclusion of a prepayment penalty. Loan calculators like those offered on GuideToRealty.com can also help homeowners evaluate their loans (http://www.guidetorealty.com/calculators/).

GuideToLenders.com is a consumer resource featuring guides on how to find the right lender or broker to provide options to best suit consumers' needs. The site has a variety of free tools and tips and provides an easy way to find multiple lenders to help consumers with their lending needs. Products offered by the lenders/brokers include new home financing, refinancing, home equity line of credit and debt consolidation loans.

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ROBERT LAPIC
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