Adjustable Rate Mortgage Pitfalls

The exact terms of the start rate, index (economic indicators), caps, and margins must be disclosed prior to the closing and then are all listed in the body of the note.  Make sure you read the disclosures.  Bring the disclosures to closing so you can compare them with the closing home loan documents.  Often times, there are errors.  You want to make sure you are getting what you expected.

Some ARMs have pre-payment penalties.  This means paying the loan off early will cost you money.  The penalty might be a dollar amount or a percentage of the principle amount.  Either way, it can be thousands of dollars and can really ruin your plans if you’re not aware.

Make sure you’re educated in the choices of economic indexes to choose from.