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Evaluate Your Adjustable-Rate Mortgage
An adjustable-rate mortgage, or ARM for short, is attractive to homeowners because the introductory interest rate is often lower than rates on traditional fixed-rate loans. That translates into lower monthly payments. ARMs can make sense if you plan to sell your home or refinance your mortgage before the introductory rate expires.
Just keep in mind that there's no guarantee you can sell or refinance in time, especially if real estate markets are depressed or the lending environment is tight. If you're a current homeowner with an ARM, look into your loan options long before the rate resets. A day spent investigating alternatives could save you thousands.
Get to know your ARM
Review your ARM's original paperwork to familiarize yourself with the conditions of the loan. Focus on these four areas as you go through the documents.
Index: Lenders use a widely followed index as the basis for the interest rate you pay on an ARM. A common index is the London Interbank Offered Rate, or LIBOR, the rate major world banks charge each other for loans.
Margin: This is the percentage you pay above or (rarely) below an index. "LIBOR plus 2," for example, means you'll pay an interest rate two percentage points above LIBOR. If LIBOR is ... more

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