BE SMART ABOUT EXOTIC MORTGAGES
Traditionally, ARMs (Adjustable Rate Mortgages), also called “exotic mortgages” have been used by experienced investors or wealthy homebuyers, who know how to take advantage of the initial savings of an ARM. But in the last few years, lenders have offered them to just about anyone looking to buy a home. This practice has caused serious problems for borrowers because if they don’t understand how ARMs work, they could end up losing a lot of money or even their home.
Inexperienced buyers can be enticed by the lower interest rate at the beginning without knowing how high the rate will go when the loan resets. Rates on ARMs can rise much faster than interest rates. So it is important to know the maximum rate you will have to pay.
ARMs can be an excellent tool for the savvy investor. But the average homebuyer should be well informed before taking on an ARM loan. If in doubt, a Fixed Rate mortgage can be the safer way to go.