Do you know your Cap Rate? Adjustable Rate Mortgages, commonly called ARMs, have periodic and lifetime cap rates. Knowing both is the first step in deciding whether or not it is time to explore mortgage refinancing options.
The periodic cap rate is the maximum interest rate increase during a specific period of time. The lifetime cap rate is the most you can be charged over the life of the loan. For example, if your current rate is 4 percent then your periodic cap may only allow an increase of 2 percent per year with a lifetime cap of 10 percent. This means your mortgage payment can increase each year until it reaches the top rate.
If you own or are thinking of obtaining adjustable rate mortgages then be sure to budget for those increased rates. If you already own a home with an adjustable rate mortgage but can't afford higher payments then it might be a good time to explore mortgage refinance options while the rates are still low.
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