How to beat the bank at the mortgage game.

If you are familiar with the game of moving your credit card debt every time you get a low introductory offer from another credit card company (“zero percent interest on transferred balances for six months” is an offer I have seen more than once), then you will understand this right away.

Banks give introductory rates on adjustable mortgages in addition to credit cards. The one- year ARM always has an introductory rate, but one-year is too short a time for this game to work.

Look at mortgages that are fixed for five or seven years and then switch automatically to an annual adjustable rate mortgage (ARM). They often have a much lower rate than the best 30-year fixed rate you can get.

The trick is to enjoy the low introductory rate for five or seven years and then refinance.

For example, I was talking to someone who got a 6.1% introductory rate on a five-year fixed (then switching to a one year ARM) when the best 30-year fixed rate he could find was 6.4%.

His plan is not to keep this mortgage for more than five years because the adjustable rate is based on a margin of 2.75% above the one year T-Bill rate, which would be 7.8% at current rates and will probably be equally bad when the five years is up.

But he can refinance for a couple of thousand dollars into a fixed mortgage or a short term mortgage or another ARM and keep his rate low. He figures the introductory rate will have saved him nearly $8,000 in interest in the five years of fixed rates, so he’s a net winner.

For more information on various types of mortages and mortgage terms, click here

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