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LESSON
26: MONTHLY PAYMENT CHANGES -- WHAT CAUSES THEM AND HOW TO COPE
During the terms of their adjustable-rate
mortgages, ARM customers expect their monthly payments to change
repeatedly. But even fixed-rate
mortgage customers experience payment fluctuations due to escrow
adjustments, PMI
removals and other things. In this lesson, we'll talk about a few
of the things that lead to payment adjustments for both ARMs and
FRMs, as well as how to prevent those changes from disrupting your
financial life.
The biggest problem -- skyrocketing rates and payments
-- affects ARM holders only, for obvious reasons. Because they pay
interest at rates that fluctuate with market changes, their payments
can increase dramatically if the rate environment takes a turn for
the worse.
Here are a couple of steps ARM borrowers should take to prepare
themselves for potential trouble if they notice rates heading higher:
1) Start socking away part of the
money you're saving each month by avoiding a fixed rate loan.
There's no way to know for sure if rates will be higher one or two
years down the road, but that extra $50 or $75 a month gives you
a cushion to draw upon if they are. The more time before an adjustment,
the more money a borrower can save, but even people a few months
away from a rate change can see some benefit.
(continued on next page)
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