This refers to how often the interest rate for adjustable-rate mortgages changes. Some adjustable rate mortgages change every month, but it is more typical to have one or two adjustments per year. The less frequently your loan rate shift’s, the less financial uncertainty you may have. But less frequent adjustments in your mortgage rate mean that you will probably have a higher teaser, or initial interest, rate. (The initial interest rate is also called the “start rate”.)
An adjustable-rate mortgage is a mortgage whose interest rate and monthly payments vary throughout its life. ARM’s typically start with an unusually low interest rate (see teaser rate) that gradually rises over time. If the overall level of interest rated drops, as measured by a variety of different indexes (see index), the interest rate of your ARM generally follows suit. Similarly, if interest rates rise, so does your mortgage’s interest rate and monthly payment. Caps (see also periodic caps and lifetime caps) limit the amount that interest rates can fluctuate. Before you agree to an adjustable-rate mortgage, be sure that you can afford the highest payments that would result if the interest rate on your mortgage increased to the maximum allowed.
I have had numerous people ask me about a reverse mortgage which enables elderly homeowners, typically who are low in cash, to tap into their home’s equity without selling their home or moving from it. Specifically, a lending institution makes a check out to you each month, and you can use the check as you want. This money is really a loan against the value of your home; because the money that you receive is a loan, the money is tax-free when you receive it. The downside of these loans is that they deplete your equity in your estate, the fees and interest rates tend to be on the high side, and some require repayment within a certain number of years.
