It's crucial, if you want to minimize the cost of your adjustable rate mortgage loan over its life, to look beyond the first month's payment. Often called a "teaser rate," the first month's payment is calibrated as low as the loan program can possible allow to attract people who assume their low monthly payment will continue until the loan is paid off. It very likely won't.



The simple key is the distance (or "spread" or "margin") between the loan's index and the resulting interest rate on which the new monthly payment is based at each scheduled adjustment time. Let's say your loan started at 5% and you therefore chose it over a loan that began at 5.25%. The choice seemed obvious at the time, but the loan you passed up may have had a lower constant spread, meaning that a few years out, the monthly payment would have been lower than what you're experiencing with the loan you chose.



If, for example, your loan is adjusted to 2.25% above the current 1-year Treasury security rate, the resulting interest rate−and payment amount−will be higher than it would have been if the loan adjusted to 2% over the same index. This seems obvious, but it is overlooked by far too many borrowers. Check closely for each loan's "spread" before choosing it. For more information call Beth at 425-450-5208.