|
Banking on a Mortgage:
Mortgage Providers|
Loan Options | ARMs |
Balloon Mortgage | Downpayment
| Pre-approval &
Sales Contracts | From Application On
| Predatory Lending
Adjustable Rate Mortgages (ARM)
Adjustable rate mortgages are popular because
they offer a lower initial or “teaser” rate, allowing
you to qualify for a larger mortgage. Your rate of interest will
adjust periodically based upon an index that reflects current
interest rates.
ARM Benefits:
| • |
ARMs have a lower initial rate than fixed rate
loans |
| • |
ARMs can be a good choice during higher fixed rate times |
| • |
An ARM that will adjust on the 5th or 7th loan year could
save you money if you stay in the home for a longer period
of time |
Overview of a Typical ARM Loan
ARM loans are loans that are tied to various economic or market
indexes. These indexes could include the LIBOR (London Inter Bank
Offering Rate), U. S. Treasury Bills, various Cost of Funds indexes,
and Certificates of Deposit. An ARM adjusts at various increments
and periods. The start rate, or the teaser rate, is usually below
the fixed rates. The initial period, or the term until the rate
adjusts, can be as little as six months or as long as ten years.
After the initial rate adjustment the ARM loan usually adjusts
each year. Know what your terms are as disclosed on the note before
you sign.
To protect the buyer, ARMS have interest rate caps. These terms
are disclosed on the note. The customary manner in which lenders
show their cap rates using the example above would be: 1/5 with
the annual cap being the first number. A conventional loan typically
has a 2/6 annual and life of loan cap. These caps remain in place
through out the life of the loan and are not changed unless the
lender is in agreement.
Types of Arms
The types of ARM loans are many and are different in their benefits.
If you see yourself only staying in a home or area for a short
period, a 30 year fixed rate may be set at a higher rate than
what you can get an ARM for. For example, if you plan on leaving
an area in five years, an ARM with 5/1 caps would make sense.
The rate would be fixed for five years or the time you are in
the home and you would sell the home before the rate would adjust.
Another feature of an ARM is they typically are assumable. This
means that when you sell your home with an ARM loan on it, the
new buyer could take over your payments and only pay you your
equity with a savings of not having to pay any closing costs or
a reduced amount.
Next: Balloon Mortgages
Mortgage Providers|
Loan Options | ARMs |
Balloon Mortgage | Downpayment
| Pre-approval &
Sales Contracts | From Application On
| Predatory Lending
|
