Interest rates are a critical component of a mortgage. Do you want a fixed rate or an adjustable rate??

The answer is not that simple.

Fixed rate mortgages: The interest rate stays the same. Generally best for people who will live for over 5 years in their home or need the stability of a fixed rate.

Adjustable rate mortgages (ARMs): Interest rate adjusts at regular intervals, usually annually; others are fixed for the first few years and then adjust after the 3rd to 7th year. ARMs have two components:

1. The Index -	A financial instrument (ie., 30 yearT-Bill) used to set a base interest rate for your adjustment.
2. The Margin -	A fixed percentage added to your index each year on the change date.

>Index + Margin = Your Interest Rate >If 30 year T-bills sold at 6%, and the margin is 2.75%,
your new interest rate is 8.75%

Caps set the max amount of interest rate change; FHA caps of 1 and 5 mean: the rate cannot change over 1% each year and never go above or below the start rate by over 5%. Conventionals usually cap at 2 and 6.

Adjustable rate loans start lower than fixed rates. This allows buyers to qualify for a more expensive house. If you plan to move within 3-5 years this product will save you money because you have a guaranteed average interest rate that will beat the fixed rate.

After that it's a risk in that it will reflect what the overall economy is doing. In bad times, the mortgage payment can fluctuate a lot. However, over the past several years adjustables have been very good buys.

>Mortgages can be confusing.
Mistakes can be costly! >I insist on mortgage counseling for my clients.
For answers to questions or a referral to a
competent mortgage officer, E-mail me or
call Bob at (800) 295-4007.