Before you decide that ARM is suitable for you have to answer to the following questions:

1. Does your income increase in order to pay increasing mortgage payments during the process?

2. Will I accept the other serious payments such as car loan, school tuition in the soonest future?

3. How long does it take you to own this home? If you want to sell this house very soon the mortgage payments cannot be problem for you and you can face the problem with mortgage payment if you want to own this for a long time.

4. Does my payments go up if interest fees in general are not increasing?

General ARM characteristics?

Adaptation period: With many adjustment ARMs, the adaptation period happens every one, three or five years in the result that can change interest fee and monthly payment.

Index: Many lenders want to link ARMs interest fees change in the index rate. These indexes increase and decrease due to interest fee.

Profit: In order to identify the interest fee of ARM, lender has to add to the index some percentage points that we call a profit. The amount of profit may differ from one to another but it is always permanent.

Interest fee caps. There are some limits on what is the interest rate or the monthly payment can be changed at the end of each adjustment period or over the process of the loan.

Initial discounts. There are interest fee discounts sometimes that, usually used as helps, which is being offered at the first year of a loan. The interest rate is reduced the prevailing rate (the index plus the profit).

Negative amortization. It means that mortgage balance is increasing. It happens almost always in spite of whether monthly payments are high enough to pay all interest fee of mortgage. It can be a cause of when the payment cap contained in the ARM is low enough such that the principal plus interest payment is greater than the payment cap.

Conversion. He agreement will be concluded with the lender and the agreement with the lender may have a clause that lets the buyer to convert the ARM to a fixed-rate mortgage.

Prepayment. Some agreements may oblige the buyer to pay special fees or penalties if the ARM is paid off early. Prepayment terms are sometimes negotiable.

It is obvious that the choice of a home mortgage is very complicated and very hard. How to help to the buyer? Federal Reserve Board and the Federal Home Loan Bank Board are always thinking about these and finding more privileges for the buyers.