Three Other Things to Ask About

There are three other things you should ask about when shopping for an ARM:

ASSUMABILITY. Will you be able to transfer the mortgage to a prospective buyer under the same terms? By assuming the mortgage, the buyer takes on primary liability for the unpaid balance of your existing mortgage or deed of trust against the property. The lender usually must approve the buyer's assumption of liability in order for you to be released from obligation.

CONVERTIBILITY. Can you convert the ARM to a fixed-rate mortgage? A convertible ARM may enable you to lock in a lower rate at some future point. Expect to pay extra for an ARM with a conversion clause— via a higher rate, an upfront fee, a conversion charge

A convertible ARM may enable you to lock in a lower rate at some future point.

imposed on the date you make the change or some combination of these charges. Some ARM contracts permit you to do this at a predetermined time, commonly after the end of the first adjustment period. When you convert, the new rate generally is the current market rate for fixed-rate mortgages. The ARM program disclosure provided by the lender will provide details about how you could convert your ARM to a fixed-rate loan.

PREPAYMENT. Will you have to pay a fee or penalty if you refinance or pay off the ARM early? Prepayment penalties sometimes are negotiable before you sign the loan documents. In many cases, however, you will be permitted to pay off the ARM loan at any time, in full or in part, without penalty.

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