Here is a tip for those who are shopping for Adjustable Rate Mortgages (ARMs): the "margin" is almost as important as the initial rate. The margin is the percentage point above the average yields for Treasury notes on which future rate adjustments will be calculated.

Let's compare two hypothetical one-year ARMs. The first may have an initial interest rate of 7% with a 2.5 margin, while the second begins at 6 7/8% with a 2.75 margin. Both loans have rate caps of 2%. Suppose that at the end of the first year of the loan, the average of the one-year Treasury note yield has been 5 1/2%. For each loan, the lenders will add the margin to that 5 1/2% average yield. Thus the interest rate for first loan would increase from 7% to 8%, and the second would go from 6 7/8% to 8 1/4%. While the first ARM had a slightly higher initial rate, it will have lower rates in subsequent years, unless the Treasury note rates increase enough to activate the annual caps on the amount of the increase. There is a wide variance among margins in ARMs offered by competing lenders, and this should be a factor when you decide on your loan.

	See All Tips In The "Financing Your Home" Category >
	See Complete Library Of Hundreds Of Tips In 30+ Categories >

Roni Chasin
Keller Williams Realty
488 Springfield Avenue
Summit, NJ 07901
Phone #: 973-202-2591
Fax #: 908-273-2996
Email: Roni@ChasinHomes.com

ChasinHomes.com is brought to you by Roni Chasin
NUMBER1EXPERTS™ in real estate for Short Hills, Livingston and Millburn, New Jersey, Luxury Properties, Unique Properties

Read Roni Chasin's Privacy Guarantee, Terms of Service, and Free & Without Obligation Pledge