Adjustable-Rate Mortgage Guide

  • Michelle ConstanceAuthor
  • 10.01.2014Date
  • Mortgage TypesCategory

Adjustable-rate mortgages go by many names, but they all mean the same thing. Whether you call it a variable-rate mortgage, tracker mortgage, or adjustable-rate mortgage the interest rate is periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets. The rate can be changed at the lender’s discretion. This type of mortgage is regulated by the Federal government, with caps on charges so that a lender can never set an outlandish rate.

Mortgage lenders most often use indices to determine mortgage rates. The most commonly used indices are the 1-year Constant-Maturity Treasury (CMT) securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR). Before choosing an adjustable rate, it important to establish which indices your lender will be using to base your interest rate. By studying the right index you will be able to get a gauge for how high interest rates could get, and how often and at what rate they increase.

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