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ARM Features
An ARM starts with a low interest rate, up to 3% lower than a fixed rate mortgage. With lower rates, you usually qualify to borrow more than with a fixed rate home loan.
ARMs usually start with a fixed rate period and end with fluctuating yearly interest rates, increasing or decreasing your monthly payment. So a 3/1 ARM means 3 years of fixed rates with interest rates changing every year after that. Interest rates are based on an index, usually the rate on the T-bill or LIBOR, and the margin the lender adds to the index.
ARM Safeguards
In order to protect borrowers from sky-rocketing monthly payments, mortgage lenders put in place safeguards. For example, a point cap limits how much interest rates can rise monthly and over the life of the loan. There are also ceiling limits on how low rates
can go, protecting the lender.
Another safeguard is a dollar cap on monthly payments. However, if interest rates rise higher than the dollar cap allows, you may end up with a longer loan. Many financing companies also allow you to convert your ARM to a fixed rate mortgage after a predetermined period.
ARM Considerations
While an ARM has many benefits, there are other considerations to look at. For instance, interest rates can rise 4% or more over the course of your home loan. If you plan to stay in your home for several years, a fixed rate may offer lower interest costs in the long term. ARMs are also unpredictable, which makes planning long term financing goals difficult.
Before you apply for an ARM, make sure you are comfortable with the level of risk involve. However, if you expect your income to rise in the future or to move, then you may be saving yourself a lot of money in interest payments with an ARM.
About the author:
See my recommended Home Mortgage Lenders online. Carrie Reeder is the owner of ABC Loan Guide, which offers help finding the best home mortgage loans.
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Details emerge on Rep. McKeon's Countrywide loanFox 28More>> LOS ANGELES (AP) - Documents detail the terms of a discounted mortgage loan received by US Rep. Howard McKeon from the now-defunct Countrywide Financial Corp. under a VIP program, according to a published report. McKeon received a $315000 ...and more » |
Oman Daily Observer |
The dream of loan waiverOman Daily ObserverBy Majed Al Sulaimany — In the end no one will be s By Huda al Jahwariya - It is difficult to find an equation to this day regarding the dream of waving loans, which is an extension of another dream known by most of us. In the past we used to enquire ...and more » |
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