If you've just bought your first home, then congratulations! It's a big deal no matter when you do it, but these days, chances are you found a very good deal on a place now that the real estate market has collapsed. In order to finance your new home, you probably took out a mortgage loan, perhaps an adjustable rate mortgage (ARM) with an initial interest rate. The ARM initial interest rate is one of that mortgage type's best features, because the initial interest rate is usually on the lower side, and is something that makes your first year or so of home ownership that much easier.
People who have an adjustable rate mortgage are more likely aware that they have an initial interest rate, but for those who are a bit unclear on what an initial interest rate means, or for people who are thinking about buying a home but don't have an adjustable rate mortgage (or any kind of mortgage, for that matter), here's how it works: The initial interest rate of an adjustable rate mortgage is the amount of interest you will be paying on your mortgage loan for a set period of time at the beginning of the life of your mortgage. It can be as brief as one month to as long as five years (or even more if you get some truly fabulous mortgage loan).
People who are shopping for a loan, especially an adjustable rate mortgage need to be very careful before making a commitment to the ARM. Initial interest rates are usually very attractive, and prospective home buyers can be persuaded into committing to this particular adjustable rate mortgage because they sound advantageous. The thing is, however, initial interest rates cease after a certain period of time, and then your rates go up or down. So when the rates rise you can get stiffed because they can rise to something very expensive.
Before you commit to an adjustable rate mortgage loan with an attractive initial interest rate, make sure you seek advice from a trusted financial advisor as well as look into what your current financial situation is and see if you can afford what you are committing to. It's critical that you know what you're doing before you sign any documents.
