If one is investing in real estate and has decided to use an adjustable-rate mortgage (ARM throughout the rest of the article), then they must be positive that they are well-prepared to push aside the lender's antics and evaluate the different loans using their own knowledge and information. In the list below, five vital tips for evaluating an ARM are mentioned along with a brief explanation of each.

1.) Get the Lender's Contact Info - Once the borrower has decided which lender they are going to use, they should immediately record the lender's information and place it in a safe place. Phone numbers, the specific person that one is dealing with, the dates that the borrower has been in contact with the lender, and the specific loan name of the loan being used are all key pieces of information. These pieces of information help ensure that the borrower will encounter no problems when contacting the loan company and the specific person about their loan.

2.) Getting the Teaser Rate - When using an ARM, the initial interest rate (teaser rate) will always be lower than comparable rates on fixed-rate mortgages. Don't get fooled by the initially low rate, as it often survives no longer than a few years. If flipping properties, this may not be a concern, but if one is purchasing the property for a home or rental, this can be a financial killer.

3.) Get the Index used for Future Rate increments - Knowing the index that is used for the ARM's periodical interest rate adjustments is critical to one's budget. Indexes are often judged on financial indexes, such as the rate on CDs or treasury bills. This is critical because some indexes have interest rates that move much more rapidly than others, thus drastically changing the payment.

4.) Know the Lender's Margin - The lender's margin is the markup or extra money that the lender charges over the index rate. For example, the index rate may be 2% but the lender enforces a margin of 3%. This means that the borrower will pay 5%, or the index plus the margin. Compare margins on the different types of ARMs to see which one is a better fit.

5.) Calculate Ahead - Don't simply calculate the monthly mortgage payment based on the teaser rate. This can cause financial destruction by reeking havoc on the borrower's budget. Instead, calculate the initial monthly payment as well as projected payments for up to five years. This ensures that the borrower is well-aware and prepared in case interest rates do go up significantly. If rates don't rise, than it is simply an added bonus to the borrower for doing their homework.

Remember, ARMs can be a great investment tool, but the borrower should always be well-prepared and able to breakdown the loan's attributes without relying completely on the often-times self-beneficial advice of the lender. Remember, knowledge is power!

The author is the founder and owner of both ManageYourRentals.com and LandLordDocuments.com