ARM Adjustable Rate Mortgage - Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly -payment amount, however, is usually subject to a Cap.An adjustable-rate mortgage (ARM) with an initial fixed-rate period of pre-determined years, during which the borrower is may have an option to pay only the interest accrued on the loan. The interest rate then adjusts annually or bi-annually, based on the indexes such London Inter-Bank Offered Rate (LIBOR) index, and can move up or down as market conditions change.
ARMS have caps so the borrower is protected by a maximum adjustment the lender can make over the term of the loan. This information should be clearly identified in the Truth in Lending statement (TIL) which should be given with the Good Faith Estimate (GFE).
ARM loans come with different initial fixed rate periods such as 1 2 3 or 5 year fixed. After the initial period they will start to adjust according to the index they are tied to. What's nice about ARM loans is it allows the borrower to have a lower payment initially. These type programs can be used for many reasons, one of them being for someone who won't be living in a property for an extended period of time.
Is the ARM right for you? I can understand how the ARM can be confusing and I want to thank you for reading the information above. If you would like to continue this conversation than please contact me so you and I can discuss your financial situation. Please read more valuable information and when you feel comfortable I would like you to contact me.
"American consumers might benefit if lenders provided greater mortgage-product alternatives to the traditional fixed-rate mortgage,...To the degree that households are driven by fears of payment shocks, but are willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."
- Alan Greenspan, the Chairman of the Federal Reserve Board at the Credit Union National Association 2004 Governmental Affairs Conference
Most lenders tie ARM interest rate changes to changes in an "index rate." These indexes usually go up and down with the general movement of interest rates. If the index rate moves up, so does your mortgage rate in most circumstances, and you will probably have to make higher monthly payments. On the other hand, if the index rate goes down your monthly payment may go down.
Lenders base ARM rates on a variety of indexes. Among the most common are the rates on one-, three-, or five-year Treasury securities. Another common index is the national or regional average cost of funds to savings and loan associations. A few lenders use their own cost of funds, over which--unlike other indexes--they have some control. You should ask what index will be used and how often it changes. Also ask how it has behaved in the past and where it is published.
It has been shown, that home owners would have saved thousands of dollars if they had a ARM of a conventional 30 year fixed.
When should you take an ARM mortgage vs. a traditional 30 year fixed?
Consider how long you plan on occupying the property. If it is for 10 years or more then a 30 year fixed may be the best bet when interest rates are low. However, if you plan on moving sooner then consider the extra savings you will achieve by choosing an ARM.
For example, you plan moving when your child is old enough to go to school in three years. The best financial choice would to get a 3 year or possibly a 5 year ARM. When a 30 year fixed mortgage is around 5.875% a 5 year ARM is around 5.25% and a 3 year ARM would be about 5.00%. On a $200,000 loan the monthly payments would be $1183 for a 30 year, $1104 for a 5 year ARM, and $1073 for a 3 year ARM. Times that by 3 years, 36 months, and your savings for an ARM vs. a 30 year fixed would be between $2800 - $3900. Money better spent elsewhere.
If you only plan on living in your home for a few more years, it might not be worth it to move from a program like a low rate ARM or an Interest Only Program to a traditional Fixed Rate loan. There may be better things to put your money towards each month that putting a few extra dollars towards the principal of your home.
Adjustable Rate Mortgage - The adjustable rate mortgage or ARM is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. The index could be for example the one year treasury, cd rates or even cost of funds as measured in a defined geographical area. Also referred to as the variable rate mortgage.
An adjustable rate mortgage or variable rate mortgage is a loan secured on a property whose interest rate and monthly repayment vary over time.
I want to thank you for reading the information above. If you would like to continue this conversation than please contact me so you and I can discuss your financial situation. Please read more valuable information and when you feel comfortable I would like you to contact me.
Adjustable rate mortgages that have a fixed periods for 3, 5, 7, or 10 years are often called Hybrids. They adjust after the fixed period ends.
An adjustable rate mortgage, also known as an ARM, is a mortgage with an interest rate that is linked to an economic index. The interest rate, and your payments, are periodically adjusted up or down as the index changes. Ask a Mortgage Professional if a ARM is right for you?
3/1 interest-only ARM - A 3/1 interest-only ARM is an adjustable rate mortgage in which none of the payments go toward retiring principal for the first three years.
Assumable mortgage - A mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage.
Annual Percentage Rate (APR) - Calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.
The APR is found on the Truth In Lending, a disclosure form that is required by law to be given to potential borrowers. Because the APR takes into considerations all the bank fees a lender charges, it is a good tool to compare different loan offers. For instance, one bank offers a borrower a mortgage loan with an interest rate of 6.25% with 1 discount point (meaning the borrower pays the bank 1% of the loan amount at closing in order to get the 6.25% interest rate), and another offers a loan with 6.5% interest rate and 0 point, how would the borrower know which to choose? Without consideration to the borrower's financial situation such as his cash reserves and how long he intends to live at the property, the loan with the lower APR is the better choice.
For an adjustable-rate loan, the APR assumes the loan's index doesn't change from its initial value.
