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How High Can My Adjustable Rate Mortgage Payment Go?

By Bob Redtree

For many potential home buyers, picking a mortgage can be quite tricky. Many inexperienced mortgage shoppers find themselves enticed to get an adjustable rate mortgage and take advantage of the low payments. Unfortunately, many of these people don’t realize how high their payments could get. How high their payments can get depends on various factors.

Market Interest Rates

Market interest rates are the first factor that can influence how high your adjustable rate mortgage payment can go. After the initial fixed rate period of an adjustable rate mortgage, the mortgage interest rate will adjust based on what the current market interest rates are. Therefore, if market rates are low, the mortgage payment will stay low. If rates get very high, then the interest rate on the mortgage will follow and be high.

Annual Cap Increase

Caps on annual interest rate hikes is the next factor that can influence how high your adjustable rate mortgage payment can go. Most adjustable rate mortgage loans prevent drastic increases by capping how high a rate can increase in any one year. In most situations, this ranges that from 1% to 2%. This means that if you have a 5% interest rate, the cap will prevent it from going above 6% to 7% after the first adjustment period.

Life of Loan Cap

The life of the loan interest rate cap is the third factor that can influence how high your adjustable rate mortgage payment can go. The life of the loan cap is a cap that states the max rate that a person could ever have to pay. In most situations, the life of loan interest rate cap is around 5%.

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4. If I Lock My Mortgage Rate, Will I Have A Lower Payment?
5. Does FHA Offer Adjustable Rate Mortgages?