Give an explanation of your understanding of what loans really cost to consumers, and how you feel about adjustable rate mortgages (ARMs) and borrowing practices.

Lending money can prove difficult and expensive. If you are considering borrowing a loan, make sure to know the total cost including any fees or interest rates. Two main parts of the total cost for a loan are principal, which is the amount you borrow and interest, which is what you pay to borrow it. There may be additional fees or points associated with the loan.

Adjustable Rate Mortgages are loans that offer variable interest rates. In other words, borrowers are more likely to be uncertain about what their monthly payments will look like in the future as rates can go up. Although ARMs are often cheaper than fixed rate loans in the beginning, they can be subject to additional risk due to their variable nature. Borrowers should use caution when considering an ARM and ensure they understand how much their monthly payments could fluctuate down the line so they aren’t caught off guard by an unexpectedly large bill.

Consumers should do their research before applying for any loan. They must also consider the financial and personal needs of each individual to determine which type of loan is best for them. Although loans can be a useful tool, they must not be misused.