This preview shows page 1. Sign up to view the full content.
Unformatted text preview: market-determined interest rate • Advantage is that rates could go down; disadvantage is that rates could increase • Initial rate—usually relatively low • Interest rate index—determines whether mortgage rate goes up • Frequency of rate adjustments—varies • Characteristics of an Adjustable-Rate Mortgage (cont’d) • Frequency of rate adjustments • Specified in mortgage contract • Many alternatives available from once a year to every five years • Make sure you can afford the monthly payments if interest rates increase • Characteristics of an Adjustable-Rate Mortgage (cont’d) • Caps on adjustable rate mortgages • Caps: maximum and minimum fluctuations in the interest rate on an ARM • Limits the fluctuations in interest rate • Financing with a fixed- versus an adjustable-rate mortgage • Depends on your expectation of future interest rates...
View Full Document
This note was uploaded on 02/22/2012 for the course FINANCE 250 taught by Professor Maryevans during the Spring '12 term at Rutgers.
- Spring '12