Lenders are always looking for
new ways to help buyers get into the home of their dreams. Today they frequently
use adjustable rate mortgages (ARMs) to increase the buyer's options. The
interest rate on an ARM changes periodically to reflect changes in the national
market. Since the loan starts at a rate that is lower than the national average,
lenders can reduce the borrower's qualifying criteria.
One way to distinguish between different ARMs is
by the national index to which they are tied. Some ARMs are tied to a
slow-moving index called the cost-of-funds index; these are usually the most
desirable. ARMs that are tied to a more volatile index, such as Treasury Notes,
can be adjusted upward at a quicker rate.
Look at all the factors before choosing a loan.
The faster index loan may start out with lower rates and lower monthly payments,
but the slower index ARM may eliminate your concern about having to re-finance
down the road.