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"The ability to lock in the biggest component of your household budget and know that it’s not going to increase in years to come is a key step toward being able to increase your lifestyle and savings in the years ahead," says Greg McBride, chief financial analyst at Bankrate.com.
Loan rate adjustments » Many ARMs now come with a limit on how much the rate can potentially increase beyond the initial fixed period.
Take a standard 5/1 ARM. This is a loan that has a fixed rate for five years and then resets in year six. A loan like this can be structured with an initial increase that’s capped at 2 percent, followed by subsequent rate hikes also capped at 2 percent. But it won’t rise more than 5 percent overall over the lifetime of the loan.
When you sit down with your lender to discuss an adjustable-rate mortgage, ask them to lay out the details of when the loan will begin to reset and by how much. You’ll also want to know exactly how much your payment will increase.
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