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February 1, 2005 > Best Image

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A Caution on ARMs CAPS

If you are shopping for an adjustable rate mortgage (ARM), you can get a measure of protection against rate increases by ensuring that your contract includes a limit on your future liability. Some ARMs put a cap on the payment, so that it will rise no higher than the maximum rate permitted by your contract. Other ARMs put a cap on any increases in the monthly payment, which can result in the monthly payment not being enough to cover the interest rate increases called for by the loan. In this situation, referred to as negative amortization, the unpaid interest is added to the loan balance.

Keep in mind that the guaranteed low rate offered on ARMs usually applies only for the first few years. This is an advantage for buyers who plan to keep a home for only two or three years. The lower monthly payments offered by an Adjustable Rate Mortgage make it possible for such buyers to purchase a more expensive home than they would otherwise be able to afford with a fixed-rate loan.

Financing a home in today's economic environment is more complicated than ever before. Many kinds of "creative" financing are available, and the average buyer needs a professional to help them sort out the options.

For a free evaluation of the best loan for you, please give us a call. Tony Koep at (510) 494-5500 or send e-mail to

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