Ask questions if you are considering an Adjustable Rate Mortgage
It is O.K. to ask questions when shopping for a loan. In fact, you should ask questions, especially if it is an Adjustable Rate Mortgage. Many people are more familiar with 30 year loans yet in today's market, I am hearing of more people interested in a 7/1 ARM or 5/1 ARM. Adjustable rate mortgage is often written or referred to as an ARM.
Being in real estate, it is not uncommon for me to be at an open house and someone will begin to tell me about the house they bought in the neighborhood and what interest rate they are paying on their home. I love to follow it up and ask what type of loan they decided would work best for them.
If I am told it is an ARM, I have discover not everyone knows, or remembers the details of what an ARM is so I thought it would be helpful to include a few questions you might want to ask your lender if you are shopping for an ARM.
Questions to ask a lender when shopping for an Adjustable Rate Mortgage (ARM)
1. What is the index?
2. What index is the ARM based on?
3. What is the margin?
4. Can you clarify what a fully indexed rate is?
5. How is the rate you are offering me calculated?
6. Using a 5/1 ARM or 7/1 ARM as an example, what is the adjustment schedule and is there a life cap on this loan?
7. What life scenarios can you give me as examples to when it make sense to lock in an ARM loan?
8. Are you quoting me a rate based on my credit scores?
9. Is there a clause in the paperwork that will let me convert the ARM to a fixed rate mortgage and if so, are there any fees involved?
10. Is it OK to make a higher payment on an ARM and will it go towards the principal?
11. Is there a discount point or discount fee I am paying up front to get this loan?
12. Are there any extra fees if I pay the loan off early be refinancing or selling my home?
I know sometimes it's hard to know what questions to ask so I hope this list helps you know how to get the conversation started with your lender.
Once you have become comfortable with what loan package works best for you, and know the purchase price you qualify for, it's time to start looking for a home.
Why a lighthouse picture? This lighthouse picture is to remind you to seek out the answers to the unknown, get your feet wet and begin to charter the choppy and the smooth sea of real estate.