Monday, September 15, 2008

Adjustable Rate Mortgages: ARM???s Can Be A Pain In The Neck

You want to ask what the margin, periodic cap, lifetime cap, and index will be. The initial fixed-rate period can range anywhere from one month to 7 years or more, depending upon the specific program. Lenders then add a set margin to that index resulting in payments, which can go up or down over the life of the loan.

The most common indices are the US Treasury Bills, California 's 11 th District Cost of Funds (COFI), and the London Interbank Offered Rate (LIBOR). Compared to a fixed-rate mortgage, there is usually a lower interest rate to start, but the interest rate is adjusted at periodic times, usually based upon an ???index???. Compared to a fixed-rate mortgage, there is usually a lower interest rate to start, but the interest rate changes periodically according to the terms of the loan program. are loans in which the interest rate changes periodically according to the terms of the loan program. Adjustable rate mortgages, or ???ARM???s???


If your loan???s prepayment period is set at three years or more, you will have to pay the penalty if you refinance just after Your interest rate will begin to adjust after the initial three years, but you plan to refinance into a fixed-rate mortgage after two years. For instance, suppose you take out an adjustable mortgage that is based on a 30 year repayment schedule, with your initial interest rate remaining fixed for three years. A prepayment penalty occurs if you pay off your loan or refinance into another mortgage before the predetermined time period expires.

To this point, you want to know if your loan has a prepayment penalty period and the details of the penalty amount attached to your loan. The individual takes advantage of the initial lower rate period and later sells their home or transfers to a fixed-rate loan before the rate adjusts upward. ARM???s are often considered by people in the process of restoring credit scores, expecting an increase in future income, or are planning to move within a set number of years. Now, it may seem that an adjustable rate mortgage is a risky deal on the surface, but they can be advantageous in certain situations.


Some are advertised with very low interest rates. Adjustable rate mortgages come in many shapes and sizes.

ARM???s can be a pain in the neck! with more information about adjustable rate mortgages. So you are now ???armed???


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