Here is a tip for those who are shopping for Adjustable Rate Mortgages (ARMs): the "margin" is almost as important as the initial rate. The margin is the percentage point above the average yields for Treasury notes on which future rate adjustments will be calculated.

Let's compare two hypothetical one-year ARMs. The first may have an initial interest rate of 7% with a 2.5 margin, while the second begins at 6 7/8% with a 2.75 margin. Both loans have rate caps of 2%. Suppose that at the end of the first year of the loan, the average of the one-year Treasury note yield has been 5 1/2%. For each loan, the lenders will add the margin to that 5 1/2% average yield. Thus the interest rate for first loan would increase from 7% to 8%, and the second would go from 6 7/8% to 8 1/4%. While the first ARM had a slightly higher initial rate, it will have lower rates in subsequent years, unless the Treasury note rates increase enough to activate the annual caps on the amount of the increase. There is a wide variance among margins in ARMs offered by competing lenders, and this should be a factor when you decide on your loan.

	See All Tips In The "Financing Your Home" Category >
	See Complete Library Of Hundreds Of Tips In 30+ Categories >

Mark A. Wood and Elena Wood, License #RS278536
Keller Williams Real Estate
2003 South Easton Road
Doylestown, PA. 18901
Phone: 215-493-3350
Office Number: 215-340-5700 Ext. 266
Fax: 215-240-7938
Email: markwood@NUMBER1EXPERT.com

www.Bucks-Realestate.com is brought to you by Wood Real Estate Group
NUMBER1EXPERT™ for Bucks County PA Real Estate, Doylestown Real Estate, and New Hope Real Estate, Pennsylvania

Read Wood Real Estate Group's Privacy Guarantee, Terms of Service, and Free & Without Obligation Pledge