Maximizing home purchasing power is an important step for many to get a home big enough to suit living needs. Increasing income, using a larger down-payment, or lowering the mortgage interest rate on the loan are 3 ways to increase buying power. Since most people cannot increase their income at will, or come up with a larger down payment, getting a lower mortgage rate is the only option. A lower interest rate can be achieved in the early years of the mortgage if the borrower chooses and adjustable rate mortgage (ARM). Depending on the type of ARM loan chosen, the interest rate on the loan will be lower than the prevailing 30 year fixed rate for 1, 3, 5, 7 or 10 years. After the introductory period is over, the rate on the mortgage will adjust annually, based on prevailing interest rate levels.

When the introductory period is over, the monthly payment on the loan could rise markedly, so analyze potential payment scenarios. Using a monthly APR calculator (these can be found on the Internet), calculate the monthly payment assuming a 2% increase in interest rates. If the monthly payment becomes too uncomfortable after the 2% rise, an ARM loan is probably not a viable option at this time. Many people in the past have been forced to talk with their lenders about mortgage loan modification with their lenders, as rising payments on ARM loans made their monthly payments unaffordable. If you need assistance weighing the benefits and risks of adjustable rate mortgage loans, consult with a licensed mortgage professional.