Adjustable Rate Mortgage Refinancing – Managing the Risks

Many homeowners shy away from Adjustable Rate Mortgages because they associate the risks with a chance of loss. While it's true that Adjustable Rate Mortgages are riskier than fixed rate loans, this risk is manageable and can save you thousands of dollars. Here are several tips to help you decide if Adjustable Rate Mortgage Refinancing is right for you.

What Are The "Risks?"

The risk comes from the possibility for payment shock when your lender adjusts the interest rate. Adjustable Rate Mortgages are tied to a financial index and when the lender changes your interest rate it will based on that index plus margin. Margin is the lender's markup of your interest rate for their profit. Your loan is adjusted at regular intervals specified in your loan contract, often 12 to 24 months. The risk of payment shock comes from the lender raising your monthly payment because the interest rate goes up and your budget cannot support the higher amount.

Many homeowners who abuse the riskier types of Adjustable Rate Mortgage loans ultimately lose their homes because they do not fully understand how these loans work. Adjustable Rate Mortgages can save you money if you take advantage of their built in safety features and use the loans properly. Adjustable Rate Mortgages have safety features called "caps." Caps limit the amount your interest rate and payments go up when the lender adjusts your payment, and over the lifetime of the loan. You can learn more about Your Adjustable Rate Mortgage options, including costly mistakes to avoid with a free mortgage refinancing tutorial.