Many people believe that when they take on an adjustable rate mortgage, if they don’t like the way it’s going they can “always just refinance.” In fact, that is what many lenders tell borrowers as an extra incentive to get them to take on the loan. However, this is not always the case. Many times when you get a loan, you are not able to re-qualify. This could be due to job changes, credit score changes, or even a change in the real estate market. If you are unable to qualify for a new loan, you are stuck with the ARM — no matter how bad the terms seem. So it is very important that if you take out an ARM you make sure it is really what you want — as well as what you are able to afford.

Adjustable rate mortgages can work in one of several ways. It is important to learn all that you can about how the ARM works in order to decide if it is right for you. The initial rate can range from one month to 5 years or even more. On some ARMs, this rate can be vastly different from the one you will pay later on the loan. Be sure that you find out the annual percentage rate, or APR in case it is significantly higher than the initial rate. If it is, this is a good indicator that your payment will be a great deal higher after the loan adjusts — in some cases, even if the interest rate stays the same.