"What is initial interest rate? How long will mine stay unchanged?"
Adjustable Rate Mortgages, or ARMs, which are coming to the end of their fixed initial interest rate period could be a serious liability for you down the road, especially with short term interest rates rising as quickly as they have been. Borrowers in ARM mortgages would be well advised to explore the option of refinancing their adjustable rate mortgage to convert to a fixed rate, while long term interest rates which set the payments of fixed rate mortgages are still low and qualifying for fixed rate refinancing is still easy. Contact a specialist to review your options at 888-418-4467
Your intial interest rate is locked in for a set period of time. After that, it will adjust to the current rate which is arrived at by adding a Margin and Index.
A mortgage has a defined rate and fixed term length. This is different than the amortization, which is usually 30 years. For example, under a 2 year fixed rate term, the rate is fixed for two years.
Be sure to consult with your mortgage professional. Get a clear explanation as to what the fixed period is. Many borrowers will just hear the term 30 year loan, and assume that it will be fixed for the full 30 years.
Different lenders have different Adjustable Rate Mortgages. Each has specified limits on how much the interest rate can change at the initial change date, how much it can change at any subsequent adjustment date, and how much it can adjust overall. Make your mortgage professional explain your loan program completely.
Most adjustable rate mortgages will have rate caps on them. These rate caps are normally for the initial interest rate's first adjustment and each interest rate adjustment thereafter. A common rate cap on various different ARM loans is a 2/1/6 cap. This means that the interest rate can adjust up to 2% on the initial rate adjustment and 1% each adjustment thereafter up to a lifetime cap of 6%. Therefore if you started with a 6% rate, the first adjustment your rate could go up to 8%, your second adjustment could go up to 9% and throughout the course of your loan your rate could increase up to 12%. Because of these adjustments many consumers decide to refinance for something a little more stable and constant. There are other possible rate caps that you could end up with, if you are on an ARM loan, so make sure you understand what the terms of your loan are upfront before you close on your loan.
Be aware that when you have a loan with a very low initial interest rate, it will adjust after the initial period. The adjustment in rate can cause a large increase in your monthly payments.
If you have an adjustable rate mortgage, it is a good idea to review your note not only to understand your adjustment terms but also to check to see if you have a prepayment penalty. Many ARM Loans have prepayment penalties for term of their fixed payment.
If you are unclear about your initial interest rate you can refer back to your closing documents. In those documents you will find your note and adjustable rate rider. This will contain all the necessary information on your mortgage. From this information you will be bale to see exactly when and how much your initial interest rate will increase and what the maximum interest rate ceiling is set at.