ARM Interest Only Mortgage: Beware Lender Sales Tactics

An ARM interest only mortgage is a unique lending product that is available at many banks and mortgage companies. With an adjustable rate interest only mortgage, the interest rate that you pay fluctuates up and down, based on an index. Also, you only pay the interest on the loan each month as your payment so the loan balance is not paid. These types of loans could be beneficial in only a few situations. However, as a rule, they are one of the most dangerous types of mortgages on the market. You need to beware some of the lender sales tactics that are associated with this type of mortgage. 

Talk About Payments

When lenders try to push this type of loan, they will inevitably talk about the low payments. They tell you to look at the payment of the 30 year fixed rate mortgage and then look at this payment. It will always be lower because you are not paying anything towards the principal. Remember that with this loan product, your loan balance will not change until it is regularly amortized.

Lower Rate

A lender will also focus on the lower interest rate, often comparing it to significantly higher fixed loan products. They do not always focus on the fact that the interest rate can go up significantly, very quickly. If your rate begins at 3% and can go up to 7% in one year, you may in financial difficulty the following year and be unable to make your payment. 

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