HOW A "FLEX MORTGAGE" WORKS

"Flex" is a slang phrase assigned to a loan that will change types in the future. The key to understanding the description is the numbers assigned to the word "flex." An example would be the 5/1 flex. This means, a 5-year fixed-rate mortgage with a change to a one-year ARM for the remainder of the term after the initial five-year period.

These loans are available in many variations. In exchange for this future adjustment, the initial fixed term will be at a substantial lower interest rate than a full-term level fixed-rate mortgage.

It is important that you read the disclosure form for the loan you select. You should understand exactly what the worst case scenarios could be in the future. All of the adjustment terms should be clear. The features will include all of the standard ARM loan descriptions such as the index, margins and caps.