My buddy in Denver just got a 5/1 ARM and didn't realize the rate cap was 2% per adjustment.

He thought the 5% lifetime cap was the only limit, but that initial jump could hit him hard in year six, which is a huge detail to miss when you're budgeting for a $450k house.

3 comments

3 Comments

jesse9941mo agoMost Upvoted

Honestly, that yearly cap detail is the whole ball game with those loans. Tbh, I saw a neighbor get absolutely wrecked by that a few years back, same exact situation. They were so happy with the low payment at first they didn't run the numbers for the first adjustment. Ngl, it forced them to sell because the new payment was just too much. Lenders bury that info in a stack of papers and it's a major problem.

lauras8325d ago

My uncle in Phoenix had a 2% yearly cap on his adjustable rate loan. I used to think those loans were fine if you were careful, but his payment jumped $400 a month after the first adjustment and never caught up to the actual rate. Watching him stress over that math totally changed my view. Now I tell everyone to read that section about caps ten times, because lenders sure won't point it out. It's the most important number on the whole page.

barnes.karen1mo ago

My cousin did the exact same thing with his first condo. He was so focused on the low starting payment he glossed over the yearly caps. When his first adjustment hit, the payment jump was brutal, and he had to pick up a ton of overtime just to cover it. Lenders really should make that part clearer before people sign. Missing that detail on a big loan is a scary way to learn a lesson.